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Proposed Tax Changes Would Eliminate Punitive Damages Deduction

Posted on 12 May 2009

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In addition to the estate tax proposed change (see related Daily NewsFlash article), the Obama administration has also proposed eliminating the deduction of punitive damage awards as a business expense.

If approved by Congress, the proposal, which the administration included in its federal budget for fiscal 2010, would apply to punitive damages paid or incurred after Dec. 31, 2010.

In calling for the change in tax law, the administration said the "deductibility of punitive damage payments undermines the role of such damages in discouraging and penalizing certain undesirable actions or activities."

Legislation has been introduced in prior congressional sessions to eliminate tax deductions for punitive damage payments, but none gained final approval.