Which expense related to compliance programs is NOT tax deductible?

The correct response highlights a critical aspect of tax regulations concerning compliance program expenses. Specifically, expenses associated with the imposition of penalties are not tax-deductible. This is based on the principle that tax deductions are allowed for ordinary and necessary business expenses that are not directly related to the violations of law. Penalties, by their nature, are incurred as a consequence of non-compliance and are punishments rather than legitimate business expenses.

In contrast, the annual maintenance of the compliance program, the salary of the compliance officer, and expenses that do not exceed the national average are typically part of a company's operational costs aimed at maintaining compliance with laws and regulations, which usually qualify for tax deductions. Thus, any expenses that arise as a direct result of penalties imposed for non-compliance are not considered ordinary business expenses and are therefore not deductible under tax law.