During the current year,the United States files criminal and civil actions against Joe,the CEO of Box Corporation,and Jane,the president of Cable Corporation,for price fixing.Both enter pleas of no contest and appropriate judgments are entered.Subsequent to this action,Square Corporation sues both Box and Cable for treble damages of $6,000,000.In settlement,Box and Cable each pay Square $1,200,000.What is the maximum amount that Box and Cable may each deduct?

Question

Quizplus · Accepted Answer

Under U.S. tax law, companies can deduct settlement payments related to business activities unless they are fines or penalties. Since Box and Cable settled for $1,200,000 each, they can deduct the entire settlement amount unless it is considered a penalty. However, the maximum deduction is limited to the actual settlement amount paid, which is $1,200,000. The choice of $400,000 is incorrect, as it does not reflect the full settlement amount paid by each company.

During the Current Year,the United States Files Criminal and Civil