Principal Issues: Under the Patent Act, if a defendant ("D") infringes a plaintiff's ("P") patent, D is liable for damages sustained by P or, if P so elects, the court may in its discretion award instead an accounting of profits. Both remedies are compensatory. The issue is whether, where the payment of damages would be deductible to D, the payment ordered under an accounting of profits would also be deductible.
Position: Given two otherwise identical fact situations, the tax treatment would be the same under the two altenatives.
Reasons: There is nothing specific in the ITA that distinguishes a damages award from an accounting of profits. If in two otherwise identical fact situations, a plaintiff opted for (or was accorded by the court) damages from its defendant, and the other plaintiff received an accounting of profits from its defendant, the tax treatment for the two defendants should be the same. What that treatment would be would depend on those identical facts.