Beyond Frustration: Section 162(f) and the Deductibility of Fines, Penaties, and Settlement Payments

The Merriam-Webster online dictionary defines frustration as a deep chronic sense or state of insecurity and dissatisfaction arising from unresolved problems or unfulfilled needs. It lists as synonyms: aggravation, bother, botheration, bugbear, exasperation, annoyance, hairshirt, hassle, headache, inconvenience, irk, irritant, nuisance, peeve, pest, rub, ruffle, thorn, trial, and vexation. It has been said that to conquer frustration one must remain intensely focused on the outcome, not the obstacles. This Article owes its existence to frustration on two counts.

The substantive topic is section 162(f). It was Congress's response in 1969 to certain deductions claimed by taxpayers that were thought to frustrate public policy. That is one count. The other is that the vagaries of section 162(f) have frustrated taxpayers, the Internal Revenue Service, and the courts ever since its enactment.

That second count is the primary focus of this Article. The first count is described in more detail below, primarily as background.