Statement by Michelle Surka, Program Associate at the U.S. Public Interest Research Group, on the resignation of Eric H. Holder Jr. from his position as Attorney General
“Attorney General Holder’s tenure at the Department of Justice saw regular billion-dollar settlement agreements with corporations accused of wrongdoing. During this time, the Department also became a subject of controversy because most of these deals – unlike those negotiated at some other agencies like the EPA – allowed corporations to write off settlement payments as tax deductions, shifting much of the cost back onto ordinary taxpayers.
“Holder’s Justice Department typically failed to specify that settlement deals could not be treated as ordinary business expenses, leaving the door open for the companies to take tax windfalls from payments that thereby became weaker deterrents against future misdeeds.
“Attorney General Holder is leaving the Justice Department with tens of billions of dollars’ worth of corporate settlements under his belt, but unfortunately he does not leave behind much of a legacy of transparency regarding those settlements. Beyond the large dollar amounts announced in the Department’s press releases, it has often been difficult to determine the actual value of these settlements.
“Earlier in Holder’s tenure, the Justice Department almost never specified whether settlement payments that resolved allegations of wrongdoing could be treated by companies as ordinary tax deductible business expenses. In 2012, however, the Department of Justice’s agreement with BP was a watershed because it both held BP accountable for its actions in the Deepwater Horizon disaster, and also included language that denied the corporation any tax deductions from the settlement. The high-profile settlement with JP Morgan also specifically forbid $2 billion of the payment from becoming a tax deduction.
“But this was not a legacy that Holder’s Justice Department followed through on. The more recent mortgage-related settlements with Wall Street banks failed to include such safeguards. Last month’s $17 billion Bank of America settlement even specifically greenlighted such tax deductions, allowing the bank to claim at least $4 billion in write-offs. Unfortunately, ordinary taxpayers will end up picking up the tab for each dollar lost to these deductions, in the form of program cuts, higher taxes, or greater national debt.
“As Attorney General Holder leaves his position and a new Attorney General is appointed, the Justice Department should not only continue to negotiate tough settlements with corporations accused of misdeeds, but should also be clear about protecting taxpayers from footing the bill.”
U.S. PIRG has been watchdogging the tax implications of out-of-court settlements. You can read U.S. PIRG’s report on the topic here: “Subsidizing Bad Behavior: How Corporate Legal Settlements for Harming the Public Become Lucrative Tax Write-Offs.”
U.S. PIRG has also created a fact sheet on Wall Street settlement tax deductions.