The new tax law limits the deductibility of False Claims Act settlements and requires that settlement agreements identify the deductible “restitution” amount.

Settlements under the False Claims Act (FCA), which often involve hundreds of millions — or even billions — of dollars, have significant tax consequences for companies facing fraud suits. Previously, FCA settlement amounts were deductible so long as they were not punitive. Some defendants have been able to deduct sizeable amounts of FCA settlements in part because the Department of Justice (DOJ) did not take a position on deductibility in settlement agreements.