Deduction for Recoveries of Damages

§ 186. Recoveries of damages for antitrust violations, etc.(a) Allowance of deductionIf a compensatory amount which is included in gross income is received or accrued during the taxable year for a compensable injury, there shall be allowed as a deduction for the taxable year an amount equal to the lesser of—(1) the amount of such compensatory amount, or (2) the amount of the unrecovered losses sustained as a result of such compensable injury. (b) Compensable injuryFor purposes of this section, the term “compensable injury” means—(1) injuries sustained as a result of an infringement of a patent issued by the United States, (2) injuries sustained as a result of a breach of contract or a breach of fiduciary duty or relationship, or (3) injuries sustained in business, or to property, by reason of any conduct forbidden in the antitrust laws for which a civil action may be brought under section 4 of the Act entitled “An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes”, approved October 15, 1914 (commonly known as the Clayton Act). (c) Compensatory amountFor purposes of this section, the term “compensatory amount” means the amount received or accrued during the taxable year as damages as a result of an award in, or in settlement of, a civil action for recovery for a compensable injury, reduced by any amounts paid or incurred in the taxable year in securing such award or settlement. (d) Unrecovered losses(1) In generalFor purposes of this section, the amount of any unrecovered loss sustained as a result of any compensable injury is—(A) the sum of the amount of the net operating losses (as determined under section 172) for each taxable year in whole or in part within the injury period, to the extent that such net operating losses are attributable to such compensable injury, reduced by (B) the sum of—(i) the amount of the net operating losses described in subparagraph (A) which were allowed for any prior taxable year as a deduction under section 172 as a net operating loss carryback or carryover to such taxable year, and (ii) the amounts allowed as a deduction under subsection (a) for any prior taxable year for prior recoveries of compensatory amounts for such compensable injury. (2) Injury periodFor purposes of paragraph (1), the injury period is—(A) with respect to any infringement of a patent, the period in which such infringement occurred, (B) with respect to a breach of contract or breach of fiduciary duty or relationship, the period during which amounts would have been received or accrued but for the breach of contract or breach of fiduciary duty or relationship, and (C) with respect to injuries sustained by reason of any conduct forbidden in the antitrust laws, the period in which such injuries were sustained.