To amend the Internal Revenue Code of 1986 to deny any deduction for certain fines, penalties, and other amounts.

April 29, 2003

Mr. BAUCUS (for himself, Mr. GRASSLEY, and Mr. MCCAIN) introduced the following bill; which was read twice and referred to the Committee on Finance

To amend the Internal Revenue Code of 1986 to deny any deduction for certain fines, penalties, and other amounts.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Government Settlement Transparency Act of 2003'.

SEC. 2. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER AMOUNTS.

(a) IN GENERAL- Subsection (f) of section 162 of the Internal Revenue Code of 1986 (relating to trade or business expenses) is amended to read as follows:

`(f) FINES, PENALTIES, AND OTHER AMOUNTS-

`(1) IN GENERAL- Except as provided in paragraph (2), no deduction otherwise allowable shall be allowed under this chapter for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government in relation to the violation of any law or the investigation or inquiry into the potential violation of any law.

`(2) EXCEPTION FOR AMOUNTS CONSTITUTING RESTITUTION- Paragraph (1) shall not apply to any amount which the taxpayer establishes constitutes restitution for damage or harm caused by the violation of any law or the potential violation of any law. This paragraph shall not apply to any amount paid or incurred as reimbursement to the government for the costs of any investigation or litigation.

`(3) TREATMENT OF CERTAIN NONGOVERNMENTAL REGULATORY ENTITIES- For purposes of paragraph (1), amounts paid or incurred to, or at the direction of, the following nongovernmental entities shall be treated as amounts paid or incurred to, or at the direction of, a government:

`(A) Any nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) in connection with a qualified board or exchange (as defined in section 1256(g)(7)).

`(B) To the extent provided in regulations, any nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) as part of performing an essential governmental function.'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to amounts paid or incurred after April 27, 2003, except that such amendment shall not apply to amounts paid or incurred under any binding order or agreement entered into on or before April 27, 2003. Such exception shall not apply to an order or agreement requiring court approval unless the approval was obtained on or before April 27, 2003.

END