The Deductibility of Punitive Damages as an Ordinary and Necessary Business Expense: Reviving the Public Policy Doctrine

Under the judicially created public policy doctrine, the deductibility as a business expense of a payment imposed for a statutory violation turned on whether the payment was penal, or whether it was compensatory. If penal, it was nondeductible, but if compensatory, it was deductible. Congress codified this judicial result in 1969. This Comment argues that Congress should have also codified this penal-compensatory test of deductibility in the case of payments imposed in ordinary civil suits. That is, a payment of punitive damages should not be deductible as a business expense