Tax Court - Fine paid by taxpayer to EC not deductible under section 162(f) 

July 17:  The U.S. Tax Court today agreed with the IRS that section 162(f) and the related regulations do not allow a taxpayer to deduct the amount of a fine paid to the European Commission because the term “government of a foreign country” (as used in the regulations) can refer to both the government of a single foreign country and to the governments of two or more foreign countries, such as the EC. Guardian Industries Corp. v. Commissioner, 143 T.C. No. 1 (July 17, 2014)

Read the Tax Court’s 49-page opinion [PDF 183 KB]


The taxpayer and its wholly owned Luxembourg subsidiary manufactured and sold float glass, fabricated-glass products, fiberglass insulation, and other building materials to customers in Europe and elsewhere. In 2004, a group of glass producers and suppliers approached the taxpayer about agreeing on prices and price increases for glass products.

The European Commission (EC) suspected that these companies were fixing the prices of their products and initiated an investigation into this suspected anti-competitive behavior. In late 2007, the EC determined that the taxpayer and its foreign subsidiary had participated in a cartel that infringed the competition provisions of EC Treaty article 81 by fixing prices, and found them jointly and severally liable for a fine of €148 million.

In March 2008, the taxpayer paid its share to the EC of €20 million or approximately U.S. $30 million.

On its 2008 federal income tax return, the taxpayer deducted the $30 million paid to the EC. The IRS disallowed this deduction and issued a notice of deficiency, and the taxpayer initiated an action in the Tax Court.

Tax Court’s opinion

The Tax Court today issued an opinion in which it stated that it agreed with the position of the IRS, that the taxpayer’s payment to the EC was not deductible pursuant to section 162(f) because:

  • The phrase “government of a foreign country,” used in Reg. section 1.162-21(a) may refer both to the government of a single foreign country and to the governments of two or more foreign countries.
  • The EC is an entity serving as an instrumentality of the EU Member States within the meaning of Reg. section 1.162-21(a)(2) and (3).

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