A Tax Formula to Restore the Historical Effects of the antitrust Treble Damage Provisions (An Open Letter to the Senate Antitrust and Monopoly Committee)

Following the well-publicized criminal conviction of a major segment of our electrical equipment industry for conspiring to fix and maintain prices, terms, and conditions of sales made to both private industry and the government, almost 2,000 private antitrust treble damage suits were brought against those convicted. In July, 1964, when at least 1,500 of these suits were still pending, the Commissioner of Internal Revenue publicly announced that amounts paid or "incurred" by the defendants in those actions to private plaintiffs, either pursuant to judgment or by way of settlement, together with legal expenses pertaining thereto, were deductible as ordinary and necessary business expenses under section 162(a) of the Code. In his ruling, the Commissioner construed the treble damage provision to be nothing more than a formula seized upon by Congress to assure plaintiffs of complete recovery for all injury suffered, not as a means of meting out punishment qua punishment to wrongdoers. Amounts paid in response to civil damage suits brought by the United States, however, were ruled not deductible.

Although bearing a resemblance to restitution, these amounts, because paid over to the public's own representative, were deemed more closely akin to another class of payments-namely, fines or penalties-which the Supreme Court specifically had held to be nondeductible.