Bill Text: IA HF2411 | 2015-2016 | 86th General Assembly | Introduced
Bill Title: A bill for an act prohibiting the deduction of amounts classified as a penalty reimbursement for purposes of the individual and corporate income tax and franchise tax, and including retroactive applicability provisions.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2016-03-30 - Passed subcommittee. [HF2411 Detail]
Download: Iowa-2015-HF2411-Introduced.html
House File 2411 - Introduced HOUSE FILE BY JONES A BILL FOR 1 An Act prohibiting the deduction of amounts classified as 2 a penalty reimbursement for purposes of the individual 3 and corporate income tax and franchise tax, and including 4 retroactive applicability provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: TLSB 5439YH (2) 86 mm/sc PAG LIN 1 1 Section 1. Section 422.7, Code 2016, is amended by adding 1 2 the following new subsection: 1 3 NEW SUBSECTION. 51. a. Add, to the extent it reduced 1 4 federal adjusted gross income, any amount paid by the taxpayer 1 5 to the extent such payment is a penalty reimbursement. 1 6 b. A payment is presumed to be a penalty reimbursement if 1 7 the following conditions are met: 1 8 (1) The payment was made to a person, or an affiliate of a 1 9 person, who was the subject of a fine or similar penalty. 1 10 (2) The fine or similar penalty was in whole or in part 1 11 the result of the actions or inactions of the taxpayer while 1 12 employed by or associated with that person or affiliate of that 1 13 person. 1 14 (3) The payment was made on or after the date of the 1 15 taxpayer's actions or inactions that resulted in the fine or 1 16 similar penalty. 1 17 c. The presumption established in paragraph "b" may be 1 18 rebutted by a showing of proof that the payment was not 1 19 motivated by or related to the imposition of the fine or 1 20 similar penalty and that such payment would have been made in 1 21 the absence of such fine or similar penalty. 1 22 d. Payments shall not be considered a penalty reimbursement 1 23 to the extent they exceed, in the aggregate, the amount of the 1 24 fine or similar penalty. 1 25 e. For purposes of this subsection, unless the context 1 26 otherwise requires: 1 27 (1) "Affiliate" means a person that directly or indirectly 1 28 through one or more intermediaries controls, or is controlled 1 29 by, or is under common control with, another person. 1 30 (2) "Fine or similar penalty" means the same as defined in 1 31 26 C.F.R. {1.162=21, but shall also include amounts paid as a 1 32 fine or penalty imposed by the national collegiate athletic 1 33 association or an affiliate of the national collegiate athletic 1 34 association. 1 35 (3) "Person" means the same as defined in section 4.1. 2 1 Sec. 2. Section 422.9, subsection 2, Code 2016, is amended 2 2 by adding the following new paragraph: 2 3 NEW PARAGRAPH. j. (1) Subtract charitable contributions 2 4 under section 170 of the Internal Revenue Code to the extent 2 5 such contribution is a penalty reimbursement. 2 6 (2) A contribution is presumed to be a penalty reimbursement 2 7 if the following conditions are met: 2 8 (a) The contribution was made to a person, or an affiliate 2 9 of a person, who was the subject of a fine or similar penalty. 2 10 (b) The fine or similar penalty was in whole or in part 2 11 the result of the actions or inactions of the taxpayer while 2 12 employed by or associated with that person or affiliate of that 2 13 person. 2 14 (c) The contribution was made on or after the date of the 2 15 taxpayer's actions or inactions that resulted in the fine or 2 16 similar penalty. 2 17 (3) The presumption established in subparagraph (2) may 2 18 be rebutted by a showing of proof that the contribution was 2 19 not motivated by or related to the imposition of the fine or 2 20 similar penalty and that such contribution would have been made 2 21 in the absence of such fine or similar penalty. 2 22 (4) Contributions shall not be considered a penalty 2 23 reimbursement to the extent they exceed, in the aggregate, the 2 24 amount of the fine or similar penalty. 2 25 (5) For purposes of this paragraph, unless the context 2 26 otherwise requires: 2 27 (a) "Affiliate" means a person that directly or indirectly 2 28 through one or more intermediaries controls, or is controlled 2 29 by, or is under common control with, another person. 2 30 (b) "Fine or similar penalty" means the same as defined in 2 31 26 C.F.R. {1.162=21, but shall also include amounts paid as a 2 32 fine or penalty imposed by the national collegiate athletic 2 33 association or an affiliate of the national collegiate athletic 2 34 association. 2 35 (c) "Person" means the same as defined in section 4.1. 3 1 Sec. 3. Section 422.35, Code 2016, is amended by adding the 3 2 following new subsection: 3 3 NEW SUBSECTION. 13. a. Add, to the extent it reduced 3 4 federal taxable income, any amount contributed under section 3 5 170 of the Internal Revenue Code or otherwise paid by the 3 6 taxpayer to the extent such contribution or payment is a 3 7 penalty reimbursement. 3 8 b. A contribution or payment is presumed to be a penalty 3 9 reimbursement if the following conditions are met: 3 10 (1) The contribution or payment was made to a person, or an 3 11 affiliate of a person, who was the subject of a fine or similar 3 12 penalty. 3 13 (2) The fine or similar penalty was in whole or in part 3 14 the result of the actions or inactions of the taxpayer while 3 15 associated with that person or affiliate of that person. 3 16 (3) The contribution or payment was made on or after the 3 17 date of the taxpayer's actions or inactions that resulted in 3 18 the fine or similar penalty. 3 19 c. The presumption established in paragraph "b" may be 3 20 rebutted by a showing of proof that the contribution or payment 3 21 was not motivated by or related to the imposition of the fine 3 22 or similar penalty and that such contribution or payment would 3 23 have been made in the absence of such fine or similar penalty. 3 24 d. Contributions and payments shall not be considered 3 25 a penalty reimbursement to the extent they exceed, in the 3 26 aggregate, the amount of the fine or similar penalty. 3 27 e. For purposes of this subsection, unless the context 3 28 otherwise requires: 3 29 (1) "Affiliate" means a person that directly or indirectly 3 30 through one or more intermediaries controls, or is controlled 3 31 by, or is under common control with, another person. 3 32 (2) "Fine or similar penalty" means the same as defined in 3 33 26 C.F.R. {1.162=21, but shall also include amounts paid as a 3 34 fine or penalty imposed by the national collegiate athletic 3 35 association or an affiliate of the national collegiate athletic 4 1 association. 4 2 (3) "Person" means the same as defined in section 4.1. 4 3 Sec. 4. RETROACTIVE APPLICABILITY. This Act applies 4 4 retroactively to January 1, 2016, for tax years beginning on 4 5 or after that date. 4 6 EXPLANATION 4 7 The inclusion of this explanation does not constitute agreement with 4 8 the explanation's substance by the members of the general assembly. 4 9 BACKGROUND. Section 162(f) of the Internal Revenue Code 4 10 and Treasury Regulation {1.162=21 generally prohibit fines or 4 11 similar penalties paid to governmental entities from being 4 12 deducted as a business expense for federal tax purposes. 4 13 By operation of law, these fines and similar penalties are 4 14 prohibited from being deducted for Iowa tax purposes. 4 15 BILL CHANGES. This bill prohibits amounts classified as 4 16 a penalty reimbursement from being deducted for purposes of 4 17 the Iowa individual and corporate income tax and franchise 4 18 tax. The bill provides that charitable contributions and other 4 19 payments are presumed to be a penalty reimbursement if they 4 20 are made to a person, or an affiliate of a person, who was 4 21 the subject of a fine or similar penalty, if the taxpayer's 4 22 actions or inactions while employed by or associated with that 4 23 person or affiliate resulted in the fine or similar penalty, 4 24 and if the payment was made on or after the date those actions 4 25 or inactions occurred. This presumption may be rebutted by 4 26 a showing of proof that the payment was not motivated by or 4 27 related to the imposition of the fine or similar penalty and 4 28 would have been made in the absence of the fine or similar 4 29 penalty. Contributions or payments are not considered penalty 4 30 reimbursements to the extent they exceed, in the aggregate, the 4 31 amount of the fine or similar penalty. 4 32 "Fine or similar penalty" is defined in the bill to mean 4 33 the same as defined in 26 C.F.R. {1.162=21, but also includes 4 34 amounts paid as a fine or penalty imposed by the national 4 35 collegiate athletic association or its affiliate. The bill 5 1 also defines "affiliate" and "person". 5 2 The bill applies retroactively to January 1, 2016, for tax 5 3 years beginning on or after that date. LSB 5439YH (2) 86 mm/sc
