Specifically , the agency addressed sanction-evasion activity using the U . S . financial system , evasion of sanctions using CVC , and possible ransomware attacks and other cybercrimes .
Tax Implications
When it comes to taxes , a common question arises when a taxpayer is hit with a civil penalty or settlement for violating an OFAC sanction . Is the penalty or settlement deductible ?
Although Internal Revenue Code Section 162 ( a ) provides for a deduction for ordinary and necessary business expenses , Sec . 162 ( f )( 1 ) states no deduction is allowed for any amount paid or incurred ( whether by suit , agreement or otherwise ) to , or at the direction of , the government in relation to the violation of any law .
However , Sec . 162 ( f )( 2 ) provides an exception to the general disallowance rule in Sec . 162 ( f )( 1 ) for certain amounts paid or incurred for restitution , remediation or to come into compliance . There doesn ’ t appear to be any case law or Internal Revenue Service ( IRS ) rulings as to whether a penalty for an OFAC sanction violation is nondeductible under Sec . 162 ( f )( 1 ).
New Government Reporting
Under a new law that went into effect the beginning of 2022 , if a taxpayer has been subject to an OFAC penalty , the IRS is required to send the taxpayer Form 1098-F . The form itemizes the total amount of the penalty to show the amount :
• To be paid for a violation
• Paid for restitution and / or remediation
• Paid for compliance
Form 1098-F is required to be filed with the IRS on or before February 28 ( March 31 , if filed electronically ) of the year following the calendar year in which the orders and / or agreements become binding under applicable law . This date determination is made regardless of whether all appeals have been exhausted or the time for filing an appeal has expired .
Layer of Complexity
Sanctions add another layer of complexity to international taxation and business dealings . Even if you are not a financial institution , you should be on high alert when dealing with Russian-based businesses .
For more information on how sanctions may impact your unique tax situation , contact the international tax advisors at Moore Doeren Mayhew today . ■
This article is a reprint from Moore Doeren Mayhew ’ s GlobalVIEW . An Independent Member Firm of Moore Global Network Limited
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