House File 19 - Introduced HOUSE FILE 19 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 1531YH (3) 87 mm/sc
H.F. 19 Section 1. Section 422.7, Code 2017, 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 -1- LSB 1531YH (3) 87 mm/sc 1/ 5
H.F. 19 Sec. 2. Section 422.9, subsection 2, Code 2017, is amended 1 by adding the following new paragraph: 2 NEW PARAGRAPH . k. (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 -2- LSB 1531YH (3) 87 mm/sc 2/ 5
H.F. 19 Sec. 3. Section 422.35, Code 2017, is amended by adding the 1 following new subsection: 2 NEW SUBSECTION . 14. 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- LSB 1531YH (3) 87 mm/sc 3/ 5
H.F. 19 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, 2017, 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 -4- LSB 1531YH (3) 87 mm/sc 4/ 5
H.F. 19 also defines “affiliate” and “person”. 1 The bill applies retroactively to January 1, 2017, for tax 2 years beginning on or after that date. 3 -5- LSB 1531YH (3) 87 mm/sc 5/ 5