In this podcast, George Hani and Marc Bohn* discuss a recent IRS Chief Counsel Advice (CCA) memo that provided guidance on the deductibility of FCPA disgorgements. At issue is if disgorgements are characterized as primarily punitive or compensatory measures. The former is not deductible for tax purposes while the latter may be. The CCA determined that in this particular case that the disgorgement was punitive as it did not specifically reference compensation. Hani said this is inconsistent with the SECs position which appears to consider disgorgement an equitable remedy. "If the SEC is taking one view and the IRS is the different view, will the taxpayers just be caught in the middle and hit on both sides?," Hani asked. Marc Bohn said that from an FCPA perspective, companies that are paying taxes domestically may not want disgorgement to be found as equitable as it may limit the SEC's ability to claw back allegedly illicit gains beyond the five-year statue of limitations. "It is the push and pull that people need to think about, there are advantages on the tax side to calling it an equitable, non-punitive amount and disadvantages on the FCPA side," Bohn said.

*Former Miller & Chevalier attorney