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House File 290 - IntroducedA Bill ForAn Act 1prohibiting the deduction of amounts classified as
2a penalty reimbursement for purposes of the individual
3and corporate income tax and franchise tax, and including
4retroactive applicability provisions.
5BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 422.7, Code 2017, is amended by adding
2the following new subsection:
3 NEW SUBSECTION. 51. a. Add, to the extent it reduced
4federal adjusted gross income, any amount paid by the taxpayer
5to the extent such payment is a penalty reimbursement.
6b. A payment is presumed to be a penalty reimbursement if
7the following conditions are met:
8(1) The payment was made to a person, or an affiliate of a
9person, who was the subject of a fine or similar penalty.
10(2) The fine or similar penalty was in whole or in part
11the result of the actions or inactions of the taxpayer while
12employed by or associated with that person or affiliate of that
13person.
14(3) The payment was made on or after the date of the
15taxpayer’s actions or inactions that resulted in the fine or
16similar penalty.
17c. The presumption established in paragraph “b” may be
18rebutted by a showing of proof that the payment was not
19motivated by or related to the imposition of the fine or
20similar penalty and that such payment would have been made in
21the absence of such fine or similar penalty.
22d. Payments shall not be considered a penalty reimbursement
23to the extent they exceed, in the aggregate, the amount of the
24fine or similar penalty.
25e. For purposes of this subsection, unless the context
26otherwise requires:
27(1) “Affiliate” means a person that directly or indirectly
28through one or more intermediaries controls, or is controlled
29by, or is under common control with, another person.
30(2) “Fine or similar penalty” means the same as defined in
3126 C.F.R. §1.162-21, but shall also include amounts paid as a
32fine or penalty imposed by the national collegiate athletic
33association or an affiliate of the national collegiate athletic
34association.
35(3) “Person” means the same as defined in section 4.1.
-1-1 Sec. 2. Section 422.9, subsection 2, Code 2017, is amended
2by adding the following new paragraph:
3 NEW PARAGRAPH. k. (1) Subtract charitable contributions
4under section 170 of the Internal Revenue Code to the extent
5such contribution is a penalty reimbursement.
6(2) A contribution is presumed to be a penalty reimbursement
7if the following conditions are met:
8(a) The contribution was made to a person, or an affiliate
9of a person, who was the subject of a fine or similar penalty.
10(b) The fine or similar penalty was in whole or in part
11the result of the actions or inactions of the taxpayer while
12employed by or associated with that person or affiliate of that
13person.
14(c) The contribution was made on or after the date of the
15taxpayer’s actions or inactions that resulted in the fine or
16similar penalty.
17(3) The presumption established in subparagraph (2) may
18be rebutted by a showing of proof that the contribution was
19not motivated by or related to the imposition of the fine or
20similar penalty and that such contribution would have been made
21in the absence of such fine or similar penalty.
22(4) Contributions shall not be considered a penalty
23reimbursement to the extent they exceed, in the aggregate, the
24amount of the fine or similar penalty.
25(5) For purposes of this paragraph, unless the context
26otherwise requires:
27(a) “Affiliate” means a person that directly or indirectly
28through one or more intermediaries controls, or is controlled
29by, or is under common control with, another person.
30(b) “Fine or similar penalty” means the same as defined in
3126 C.F.R. §1.162-21, but shall also include amounts paid as a
32fine or penalty imposed by the national collegiate athletic
33association or an affiliate of the national collegiate athletic
34association.
35(c) “Person” means the same as defined in section 4.1.
-2-1 Sec. 3. Section 422.35, Code 2017, is amended by adding the
2following new subsection:
3 NEW SUBSECTION. 14. a. Add, to the extent it reduced
4federal taxable income, any amount contributed under section
5170 of the Internal Revenue Code or otherwise paid by the
6taxpayer to the extent such contribution or payment is a
7penalty reimbursement.
8b. A contribution or payment is presumed to be a penalty
9reimbursement if the following conditions are met:
10(1) The contribution or payment was made to a person, or an
11affiliate of a person, who was the subject of a fine or similar
12penalty.
13(2) The fine or similar penalty was in whole or in part
14the result of the actions or inactions of the taxpayer while
15associated with that person or affiliate of that person.
16(3) The contribution or payment was made on or after the
17date of the taxpayer’s actions or inactions that resulted in
18the fine or similar penalty.
19c. The presumption established in paragraph “b” may be
20rebutted by a showing of proof that the contribution or payment
21was not motivated by or related to the imposition of the fine
22or similar penalty and that such contribution or payment would
23have been made in the absence of such fine or similar penalty.
24d. Contributions and payments shall not be considered
25a penalty reimbursement to the extent they exceed, in the
26aggregate, the amount of the fine or similar penalty.
27e. For purposes of this subsection, unless the context
28otherwise requires:
29(1) “Affiliate” means a person that directly or indirectly
30through one or more intermediaries controls, or is controlled
31by, or is under common control with, another person.
32(2) “Fine or similar penalty” means the same as defined in
3326 C.F.R. §1.162-21, but shall also include amounts paid as a
34fine or penalty imposed by the national collegiate athletic
35association or an affiliate of the national collegiate athletic
-3-1association.
2(3) “Person” means the same as defined in section 4.1.
3 Sec. 4. RETROACTIVE APPLICABILITY. This Act applies
4retroactively to January 1, 2017, for tax years beginning on
5or after that date.
6EXPLANATION
7The inclusion of this explanation does not constitute agreement with
8the explanation’s substance by the members of the general assembly.
9BACKGROUND. Section 162(f) of the Internal Revenue Code
10and Treasury Regulation §1.162-21 generally prohibit fines or
11similar penalties paid to governmental entities from being
12deducted as a business expense for federal tax purposes.
13By operation of law, these fines and similar penalties are
14prohibited from being deducted for Iowa tax purposes.
15BILL CHANGES. This bill prohibits amounts classified as
16a penalty reimbursement from being deducted for purposes of
17the Iowa individual and corporate income tax and franchise
18tax. The bill provides that charitable contributions and other
19payments are presumed to be a penalty reimbursement if they
20are made to a person, or an affiliate of a person, who was
21the subject of a fine or similar penalty, if the taxpayer’s
22actions or inactions while employed by or associated with that
23person or affiliate resulted in the fine or similar penalty,
24and if the payment was made on or after the date those actions
25or inactions occurred. This presumption may be rebutted by
26a showing of proof that the payment was not motivated by or
27related to the imposition of the fine or similar penalty and
28would have been made in the absence of the fine or similar
29penalty. Contributions or payments are not considered penalty
30reimbursements to the extent they exceed, in the aggregate, the
31amount of the fine or similar penalty.
32“Fine or similar penalty” is defined in the bill to mean
33the same as defined in 26 C.F.R. §1.162-21, but also includes
34amounts paid as a fine or penalty imposed by the national
35collegiate athletic association or its affiliate. The bill
-4-1also defines “affiliate” and “person”.
2The bill applies retroactively to January 1, 2017, for tax
3years beginning on or after that date.
-5-mm/sc
2a penalty reimbursement for purposes of the individual
3and corporate income tax and franchise tax, and including
4retroactive applicability provisions.
5BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 422.7, Code 2017, is amended by adding
2the following new subsection:
3 NEW SUBSECTION. 51. a. Add, to the extent it reduced
4federal adjusted gross income, any amount paid by the taxpayer
5to the extent such payment is a penalty reimbursement.
6b. A payment is presumed to be a penalty reimbursement if
7the following conditions are met:
8(1) The payment was made to a person, or an affiliate of a
9person, who was the subject of a fine or similar penalty.
10(2) The fine or similar penalty was in whole or in part
11the result of the actions or inactions of the taxpayer while
12employed by or associated with that person or affiliate of that
13person.
14(3) The payment was made on or after the date of the
15taxpayer’s actions or inactions that resulted in the fine or
16similar penalty.
17c. The presumption established in paragraph “b” may be
18rebutted by a showing of proof that the payment was not
19motivated by or related to the imposition of the fine or
20similar penalty and that such payment would have been made in
21the absence of such fine or similar penalty.
22d. Payments shall not be considered a penalty reimbursement
23to the extent they exceed, in the aggregate, the amount of the
24fine or similar penalty.
25e. For purposes of this subsection, unless the context
26otherwise requires:
27(1) “Affiliate” means a person that directly or indirectly
28through one or more intermediaries controls, or is controlled
29by, or is under common control with, another person.
30(2) “Fine or similar penalty” means the same as defined in
3126 C.F.R. §1.162-21, but shall also include amounts paid as a
32fine or penalty imposed by the national collegiate athletic
33association or an affiliate of the national collegiate athletic
34association.
35(3) “Person” means the same as defined in section 4.1.
-1-1 Sec. 2. Section 422.9, subsection 2, Code 2017, is amended
2by adding the following new paragraph:
3 NEW PARAGRAPH. k. (1) Subtract charitable contributions
4under section 170 of the Internal Revenue Code to the extent
5such contribution is a penalty reimbursement.
6(2) A contribution is presumed to be a penalty reimbursement
7if the following conditions are met:
8(a) The contribution was made to a person, or an affiliate
9of a person, who was the subject of a fine or similar penalty.
10(b) The fine or similar penalty was in whole or in part
11the result of the actions or inactions of the taxpayer while
12employed by or associated with that person or affiliate of that
13person.
14(c) The contribution was made on or after the date of the
15taxpayer’s actions or inactions that resulted in the fine or
16similar penalty.
17(3) The presumption established in subparagraph (2) may
18be rebutted by a showing of proof that the contribution was
19not motivated by or related to the imposition of the fine or
20similar penalty and that such contribution would have been made
21in the absence of such fine or similar penalty.
22(4) Contributions shall not be considered a penalty
23reimbursement to the extent they exceed, in the aggregate, the
24amount of the fine or similar penalty.
25(5) For purposes of this paragraph, unless the context
26otherwise requires:
27(a) “Affiliate” means a person that directly or indirectly
28through one or more intermediaries controls, or is controlled
29by, or is under common control with, another person.
30(b) “Fine or similar penalty” means the same as defined in
3126 C.F.R. §1.162-21, but shall also include amounts paid as a
32fine or penalty imposed by the national collegiate athletic
33association or an affiliate of the national collegiate athletic
34association.
35(c) “Person” means the same as defined in section 4.1.
-2-1 Sec. 3. Section 422.35, Code 2017, is amended by adding the
2following new subsection:
3 NEW SUBSECTION. 14. a. Add, to the extent it reduced
4federal taxable income, any amount contributed under section
5170 of the Internal Revenue Code or otherwise paid by the
6taxpayer to the extent such contribution or payment is a
7penalty reimbursement.
8b. A contribution or payment is presumed to be a penalty
9reimbursement if the following conditions are met:
10(1) The contribution or payment was made to a person, or an
11affiliate of a person, who was the subject of a fine or similar
12penalty.
13(2) The fine or similar penalty was in whole or in part
14the result of the actions or inactions of the taxpayer while
15associated with that person or affiliate of that person.
16(3) The contribution or payment was made on or after the
17date of the taxpayer’s actions or inactions that resulted in
18the fine or similar penalty.
19c. The presumption established in paragraph “b” may be
20rebutted by a showing of proof that the contribution or payment
21was not motivated by or related to the imposition of the fine
22or similar penalty and that such contribution or payment would
23have been made in the absence of such fine or similar penalty.
24d. Contributions and payments shall not be considered
25a penalty reimbursement to the extent they exceed, in the
26aggregate, the amount of the fine or similar penalty.
27e. For purposes of this subsection, unless the context
28otherwise requires:
29(1) “Affiliate” means a person that directly or indirectly
30through one or more intermediaries controls, or is controlled
31by, or is under common control with, another person.
32(2) “Fine or similar penalty” means the same as defined in
3326 C.F.R. §1.162-21, but shall also include amounts paid as a
34fine or penalty imposed by the national collegiate athletic
35association or an affiliate of the national collegiate athletic
-3-1association.
2(3) “Person” means the same as defined in section 4.1.
3 Sec. 4. RETROACTIVE APPLICABILITY. This Act applies
4retroactively to January 1, 2017, for tax years beginning on
5or after that date.
6EXPLANATION
7The inclusion of this explanation does not constitute agreement with
8the explanation’s substance by the members of the general assembly.
9BACKGROUND. Section 162(f) of the Internal Revenue Code
10and Treasury Regulation §1.162-21 generally prohibit fines or
11similar penalties paid to governmental entities from being
12deducted as a business expense for federal tax purposes.
13By operation of law, these fines and similar penalties are
14prohibited from being deducted for Iowa tax purposes.
15BILL CHANGES. This bill prohibits amounts classified as
16a penalty reimbursement from being deducted for purposes of
17the Iowa individual and corporate income tax and franchise
18tax. The bill provides that charitable contributions and other
19payments are presumed to be a penalty reimbursement if they
20are made to a person, or an affiliate of a person, who was
21the subject of a fine or similar penalty, if the taxpayer’s
22actions or inactions while employed by or associated with that
23person or affiliate resulted in the fine or similar penalty,
24and if the payment was made on or after the date those actions
25or inactions occurred. This presumption may be rebutted by
26a showing of proof that the payment was not motivated by or
27related to the imposition of the fine or similar penalty and
28would have been made in the absence of the fine or similar
29penalty. Contributions or payments are not considered penalty
30reimbursements to the extent they exceed, in the aggregate, the
31amount of the fine or similar penalty.
32“Fine or similar penalty” is defined in the bill to mean
33the same as defined in 26 C.F.R. §1.162-21, but also includes
34amounts paid as a fine or penalty imposed by the national
35collegiate athletic association or its affiliate. The bill
-4-1also defines “affiliate” and “person”.
2The bill applies retroactively to January 1, 2017, for tax
3years beginning on or after that date.
-5-mm/sc