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 the amount paid in settlement of a lawsuit as a business expense, but not more than the actual amount paid. Since Box and Cable each paid $1,200,000, they can deduct the portion that represents the actual damages, which is one-third of the settlement amount, or $400,000 each.

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