Tri-State Chemical Company manufactured different types of farming pesticides. Over the course of several years, the toxic waste contaminated the air and water around the area where the plant conducted business. Several employees suffered toxic poisoning and the Environmental Protection Agency (EPA) cited the company for violations.

In court, the judge found Gray guilty and imposed fines of $20 million dollars. Tri-State Chemical Company voluntarily set up a charitable fund for the purpose of bettering the environment and funded it with $10 million dollars. The company incurred legal expenses in setting up the foundation and defending itself in court. The court reduced the fine from $20 million to $12 million.

Tri-State Chemical Company deducted the $10 million paid to the foundation and the legal expenses incurred. The IRS disallowed both deductions on grounds that the payment was, in fact, a fine and violation of public policy.

Tri-States president, Brian Teller, has contacted you regarding the deductibility of the $10 million dollar payment, $12 million dollar fine, and legal fees. Write a letter to Brian in the required format with your answers to the deductibility of the costs incurred. Brians address is 8600 River Valley Road, Evansville, IN 47711