Are All Fines Non-Deductible?

A few weeks ago Elon Muck made some big news when he got in trouble with the SEC. The agency investigated the Tesla CEO after he made public comments about possibly taking the company private. There was even talk he could be ousted from Tesla. In the end, he was able to keep his post as CEO of the car company, but he was forced to step down as chairman. 

Additionally, he and the company were both hit with $20 million fines. So could they possibly use that $40 million as a tax deduction? Well, according to one report, Tesla did expressly agree in a court filing not to claim a tax deduction for the $20 million. 

So that leads to the question: aren’t all fines by the government for breaking any law non-deductible? Section 162(f) of the tax code would seem to spell that out. However, there are so many potential exceptions that many companies figure out to write off even some the biggest fines. 

Even though the laws were made a little stricter under the Tax Cut and Jobs Act, there are still ways to write off fines. The IRS allows taxpayers to write off some restitution payments to come into compliance with law. As for Musk, there was no report as to whether or not he agreed not to use the fine as a deduction. So it’s entirely possible he will find a way to do so.