Talley Industries, Inc. v. Commissioner

MEMORANDUM *

Petitioners-Appellants, Talley Industries, Inc. and Consolidated Subsidiaries (collectively “Talley”), appeal the judgment of the Tax Court in favor of the Commissioner of the Internal Revenue Service (“IRS”). On remand from an earlier decision of this court, Talley Indus., Inc. v. Comm’r of Internal Rev., 116 F.3d 382 (9th Cir.1997) (“Talley I”), the Tax Court found that Talley failed to establish that $940,000 of a $2.5 million settlement between Talley and the government qualified as an ordinary and necessary business expense deductible under 26 U.S.C. § 162 (a). We have jurisdiction pursuant to 26 U.S.C. § 7482 , and we affirm.

In Talley I, we reversed an earlier ruling of the Tax Court granting summary judgment in favor of Talley on the issue of the proper characterization of the disputed amount and remanded for further proceedings. We explained that, if the disputed amount represented compensation to the government for Talley’s conduct, it would be deductible as an ordinary and necessary business expense under 26 U.S.C. § 162 (a); but if the amount were intended as punishment or a deterrent, it would constitute a “fine or similar penalty paid to a government…