Curtailing Environmental Settlement Deductibility

Law360, New York (December 1, 2008, 12:00 AM EST) -- Environmental settlements are now receiving increased scrutiny from the Internal Revenue Service (IRS). The IRS is concerned that corporations are improperly deducting portions of settlements, including the costs involved in funding Supplemental Environmental Projects (SEPs).

While some environmental settlements are deductible as ordinary and necessary business expenses under Section 162(a) of the Internal Revenue Code (26 U.S.C. § 162), Section 162(f) of the Internal Revenue Code (26 U.S.C. § 162) prohibits taxpayers from deducting certain types of penalties.

In recent years, the IRS has taken a...
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