Altria Prevails in Tax Litigation on Statutory Interpretation Question

Skadden successfully represented Altria, Inc. in securing a complete victory in an IRS dispute related to a $9.3 million tax refund. In a prior litigation, a plaintiff successfully sued Altria and was awarded punitive damages, a portion of which was paid to the state government under the state’s split-recovery statute. Altria claimed a deduction for the entire award, including the amount paid to the state. The IRS claimed the portion of the award paid to the state was a “fine or similar penalty paid to a government for the violation of law,” which may not be deducted, under Section 162(f) of the Internal Revenue Code. On January 19, 2022, Judge Robert E. Payne of the Eastern District of Virginia ruled for Altria, holding that the payment made to the state was not a fine or similar penalty because it “did not resemble a penalty for an offense.”