by Was your company a party to an agreement or a defendant in a lawsuit with a federal agency such as the Equal Employment Opportunity Commission (EEOC) or the Department of Labor (DOL)? If so, the company may be entitled to a tax deduction for some costs paid under the agreement or court order. The federal tax code gives employers a way to deduct amounts paid for restitution, remediation, or getting into legal compliance as part of an agreement or order.
After resolution of an employer dispute, the agency involved, such as the EEOC, files an information return with the Internal Revenue Service (IRS) regarding employer payments paid under a court order or agreement. It also issues a Form 1098-F to the employer. When an employer receives a Form 1098-F, it means that the agency’s records show a resolution that resulted in the employer incurring costs of $50,000 or more.
At a minimum, receiving a Form 1098-F should trigger an evaluation by the employer and its tax advisor regarding the possibility of a tax deduction. There needs to be more than the document itself to prove a deduction. The employer’s receipt of a Form 1098-F does not mean that there has been a determination that all the federal tax code requirements have been met for the employer to claim a deduction. The IRS, not the federal agency issuing the Form 1099-F, makes that determination. The form may not specify the exact amount that the employer paid under the order or agreement.
For more information:
Several agencies, including the EEOC, are providing information for employers on Form 1098-F: https://www.eeoc.gov/what-you-should-know-about-irs-form-1098f.
Note: The tax code provisions regarding deductions for fines, penalties, and other payments made due to the resolution of disputes with the government apply to more than employment-related disputes. For information on all disputes covered see: https://www.irs.gov/forms-pubs/about-form-1098-f.
