Punitive damages treated as regular business expense and deductible when paid

Insurance Tax Bulletin

The US Court of Appeals for the Seventh Circuit (the Court) recently decided, in State Farm v. Commissioner, to affirm in part and reverse in part a US Tax Court decision regarding the tax treatment of bad-faith damage awards that have not been paid and used in determining insurance loss reserves. This finding may provide support to taxpayers pursuing other claims based upon statutory accounting.

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