May 20, 2011

Proposed California bill would prevent tax deductions for punitive damages

Somehow I missed this when it happened, but I learned today that Assemblyman Mike Feuer introduced a bill in February - - Assembly Bill 1276 - - to prevent California taxpayers from deducting punitive damages payments as business expenses.  In general, taxpayers engaged in a business are permitted to deduct all expenses that are ordinary and necessary in conducting that business, unless specifically excluded by statute.  This proposal would eliminate the deduction for payments of punitive damages.  The bill has been approved by the Assembly Committee on Tax & Revenue and has been referred to the Appropriations committee. 

As far as I'm aware, no U.S. jurisdiction has prohibited deduction of punitive damages.  But as noted in prior posts, the Obama administration has advocated for a change in federal law, a proposal that has drawn sharp criticism from law professors.

Related posts:

Proposal to eliminate [federal] tax deduction for punitive damages still alive

More from Prof. Markel on Tax Policy and Punitive Damages

"Taxing Punitive Damages"

Proposed [federal] legislation would eliminate tax deduction for punitive damages

Obama administration proposes to eliminate tax deduction for payment of punitive damages