House
File
2411
-
Introduced
HOUSE
FILE
2411
BY
JONES
A
BILL
FOR
An
Act
prohibiting
the
deduction
of
amounts
classified
as
1
a
penalty
reimbursement
for
purposes
of
the
individual
2
and
corporate
income
tax
and
franchise
tax,
and
including
3
retroactive
applicability
provisions.
4
BE
IT
ENACTED
BY
THE
GENERAL
ASSEMBLY
OF
THE
STATE
OF
IOWA:
5
TLSB
5439YH
(2)
86
mm/sc
H.F.
2411
Section
1.
Section
422.7,
Code
2016,
is
amended
by
adding
1
the
following
new
subsection:
2
NEW
SUBSECTION
.
51.
a.
Add,
to
the
extent
it
reduced
3
federal
adjusted
gross
income,
any
amount
paid
by
the
taxpayer
4
to
the
extent
such
payment
is
a
penalty
reimbursement.
5
b.
A
payment
is
presumed
to
be
a
penalty
reimbursement
if
6
the
following
conditions
are
met:
7
(1)
The
payment
was
made
to
a
person,
or
an
affiliate
of
a
8
person,
who
was
the
subject
of
a
fine
or
similar
penalty.
9
(2)
The
fine
or
similar
penalty
was
in
whole
or
in
part
10
the
result
of
the
actions
or
inactions
of
the
taxpayer
while
11
employed
by
or
associated
with
that
person
or
affiliate
of
that
12
person.
13
(3)
The
payment
was
made
on
or
after
the
date
of
the
14
taxpayer’s
actions
or
inactions
that
resulted
in
the
fine
or
15
similar
penalty.
16
c.
The
presumption
established
in
paragraph
“b”
may
be
17
rebutted
by
a
showing
of
proof
that
the
payment
was
not
18
motivated
by
or
related
to
the
imposition
of
the
fine
or
19
similar
penalty
and
that
such
payment
would
have
been
made
in
20
the
absence
of
such
fine
or
similar
penalty.
21
d.
Payments
shall
not
be
considered
a
penalty
reimbursement
22
to
the
extent
they
exceed,
in
the
aggregate,
the
amount
of
the
23
fine
or
similar
penalty.
24
e.
For
purposes
of
this
subsection,
unless
the
context
25
otherwise
requires:
26
(1)
“Affiliate”
means
a
person
that
directly
or
indirectly
27
through
one
or
more
intermediaries
controls,
or
is
controlled
28
by,
or
is
under
common
control
with,
another
person.
29
(2)
“Fine
or
similar
penalty”
means
the
same
as
defined
in
30
26
C.F.R.
§1.162-21,
but
shall
also
include
amounts
paid
as
a
31
fine
or
penalty
imposed
by
the
national
collegiate
athletic
32
association
or
an
affiliate
of
the
national
collegiate
athletic
33
association.
34
(3)
“Person”
means
the
same
as
defined
in
section
4.1.
35
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Sec.
2.
Section
422.9,
subsection
2,
Code
2016,
is
amended
1
by
adding
the
following
new
paragraph:
2
NEW
PARAGRAPH
.
j.
(1)
Subtract
charitable
contributions
3
under
section
170
of
the
Internal
Revenue
Code
to
the
extent
4
such
contribution
is
a
penalty
reimbursement.
5
(2)
A
contribution
is
presumed
to
be
a
penalty
reimbursement
6
if
the
following
conditions
are
met:
7
(a)
The
contribution
was
made
to
a
person,
or
an
affiliate
8
of
a
person,
who
was
the
subject
of
a
fine
or
similar
penalty.
9
(b)
The
fine
or
similar
penalty
was
in
whole
or
in
part
10
the
result
of
the
actions
or
inactions
of
the
taxpayer
while
11
employed
by
or
associated
with
that
person
or
affiliate
of
that
12
person.
13
(c)
The
contribution
was
made
on
or
after
the
date
of
the
14
taxpayer’s
actions
or
inactions
that
resulted
in
the
fine
or
15
similar
penalty.
16
(3)
The
presumption
established
in
subparagraph
(2)
may
17
be
rebutted
by
a
showing
of
proof
that
the
contribution
was
18
not
motivated
by
or
related
to
the
imposition
of
the
fine
or
19
similar
penalty
and
that
such
contribution
would
have
been
made
20
in
the
absence
of
such
fine
or
similar
penalty.
21
(4)
Contributions
shall
not
be
considered
a
penalty
22
reimbursement
to
the
extent
they
exceed,
in
the
aggregate,
the
23
amount
of
the
fine
or
similar
penalty.
24
(5)
For
purposes
of
this
paragraph,
unless
the
context
25
otherwise
requires:
26
(a)
“Affiliate”
means
a
person
that
directly
or
indirectly
27
through
one
or
more
intermediaries
controls,
or
is
controlled
28
by,
or
is
under
common
control
with,
another
person.
29
(b)
“Fine
or
similar
penalty”
means
the
same
as
defined
in
30
26
C.F.R.
§1.162-21,
but
shall
also
include
amounts
paid
as
a
31
fine
or
penalty
imposed
by
the
national
collegiate
athletic
32
association
or
an
affiliate
of
the
national
collegiate
athletic
33
association.
34
(c)
“Person”
means
the
same
as
defined
in
section
4.1.
35
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2411
Sec.
3.
Section
422.35,
Code
2016,
is
amended
by
adding
the
1
following
new
subsection:
2
NEW
SUBSECTION
.
13.
a.
Add,
to
the
extent
it
reduced
3
federal
taxable
income,
any
amount
contributed
under
section
4
170
of
the
Internal
Revenue
Code
or
otherwise
paid
by
the
5
taxpayer
to
the
extent
such
contribution
or
payment
is
a
6
penalty
reimbursement.
7
b.
A
contribution
or
payment
is
presumed
to
be
a
penalty
8
reimbursement
if
the
following
conditions
are
met:
9
(1)
The
contribution
or
payment
was
made
to
a
person,
or
an
10
affiliate
of
a
person,
who
was
the
subject
of
a
fine
or
similar
11
penalty.
12
(2)
The
fine
or
similar
penalty
was
in
whole
or
in
part
13
the
result
of
the
actions
or
inactions
of
the
taxpayer
while
14
associated
with
that
person
or
affiliate
of
that
person.
15
(3)
The
contribution
or
payment
was
made
on
or
after
the
16
date
of
the
taxpayer’s
actions
or
inactions
that
resulted
in
17
the
fine
or
similar
penalty.
18
c.
The
presumption
established
in
paragraph
“b”
may
be
19
rebutted
by
a
showing
of
proof
that
the
contribution
or
payment
20
was
not
motivated
by
or
related
to
the
imposition
of
the
fine
21
or
similar
penalty
and
that
such
contribution
or
payment
would
22
have
been
made
in
the
absence
of
such
fine
or
similar
penalty.
23
d.
Contributions
and
payments
shall
not
be
considered
24
a
penalty
reimbursement
to
the
extent
they
exceed,
in
the
25
aggregate,
the
amount
of
the
fine
or
similar
penalty.
26
e.
For
purposes
of
this
subsection,
unless
the
context
27
otherwise
requires:
28
(1)
“Affiliate”
means
a
person
that
directly
or
indirectly
29
through
one
or
more
intermediaries
controls,
or
is
controlled
30
by,
or
is
under
common
control
with,
another
person.
31
(2)
“Fine
or
similar
penalty”
means
the
same
as
defined
in
32
26
C.F.R.
§1.162-21,
but
shall
also
include
amounts
paid
as
a
33
fine
or
penalty
imposed
by
the
national
collegiate
athletic
34
association
or
an
affiliate
of
the
national
collegiate
athletic
35
-3-
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5439YH
(2)
86
mm/sc
3/
5
H.F.
2411
association.
1
(3)
“Person”
means
the
same
as
defined
in
section
4.1.
2
Sec.
4.
RETROACTIVE
APPLICABILITY.
This
Act
applies
3
retroactively
to
January
1,
2016,
for
tax
years
beginning
on
4
or
after
that
date.
5
EXPLANATION
6
The
inclusion
of
this
explanation
does
not
constitute
agreement
with
7
the
explanation’s
substance
by
the
members
of
the
general
assembly.
8
BACKGROUND.
Section
162(f)
of
the
Internal
Revenue
Code
9
and
Treasury
Regulation
§1.162-21
generally
prohibit
fines
or
10
similar
penalties
paid
to
governmental
entities
from
being
11
deducted
as
a
business
expense
for
federal
tax
purposes.
12
By
operation
of
law,
these
fines
and
similar
penalties
are
13
prohibited
from
being
deducted
for
Iowa
tax
purposes.
14
BILL
CHANGES.
This
bill
prohibits
amounts
classified
as
15
a
penalty
reimbursement
from
being
deducted
for
purposes
of
16
the
Iowa
individual
and
corporate
income
tax
and
franchise
17
tax.
The
bill
provides
that
charitable
contributions
and
other
18
payments
are
presumed
to
be
a
penalty
reimbursement
if
they
19
are
made
to
a
person,
or
an
affiliate
of
a
person,
who
was
20
the
subject
of
a
fine
or
similar
penalty,
if
the
taxpayer’s
21
actions
or
inactions
while
employed
by
or
associated
with
that
22
person
or
affiliate
resulted
in
the
fine
or
similar
penalty,
23
and
if
the
payment
was
made
on
or
after
the
date
those
actions
24
or
inactions
occurred.
This
presumption
may
be
rebutted
by
25
a
showing
of
proof
that
the
payment
was
not
motivated
by
or
26
related
to
the
imposition
of
the
fine
or
similar
penalty
and
27
would
have
been
made
in
the
absence
of
the
fine
or
similar
28
penalty.
Contributions
or
payments
are
not
considered
penalty
29
reimbursements
to
the
extent
they
exceed,
in
the
aggregate,
the
30
amount
of
the
fine
or
similar
penalty.
31
“Fine
or
similar
penalty”
is
defined
in
the
bill
to
mean
32
the
same
as
defined
in
26
C.F.R.
§1.162-21,
but
also
includes
33
amounts
paid
as
a
fine
or
penalty
imposed
by
the
national
34
collegiate
athletic
association
or
its
affiliate.
The
bill
35
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5439YH
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2411
also
defines
“affiliate”
and
“person”.
1
The
bill
applies
retroactively
to
January
1,
2016,
for
tax
2
years
beginning
on
or
after
that
date.
3
-5-
LSB
5439YH
(2)
86
mm/sc
5/
5