Deirdre Cummings
Legislative Director, MASSPIRG
617-747-4319
[email protected]
Legislative Director, MASSPIRG
617-747-4319
[email protected]
MASSPIRG
Washington, D.C. – Today, Senators Chuck Grassley (R-IA) and Jack Reed (D-RI) reintroduced The Government Settlement Transparency and Reform Act, which would restrict the ability for corporations to reap massive tax write-offs from payments made to settle allegations of misconduct or criminal wrongdoing. This comes on the heels of reports that Standard & Poor’s will be able to claim a nearly $300 million tax deduction for its most recent settlement to addressing its allegedly flawed ratings practices and their role in the 2008 financial crisis.
This bipartisan effort will address the tax write-offs some corporations repeatedly receive for settlements they pay to resolve charges of harming the public. While federal law forbids companies from claiming public fines and statutory penalties as tax write-offs, settlement payments resulting from corporate negligence or malfeasance may be treated as business expenses and could thus be deducted from their taxes.
“These tax deductions result in the public paying the price for corporate misdeeds in the form of higher taxes, cuts to essential public programs, and higher government debt,” said Deirdre Cummings, Legislative Director for MASSPIRG. “We applaud the bipartisan effort to ensure that taxpayers do not have to pay twice for corporate misdeeds.”
“Preying on consumers or defrauding investors shouldn’t be classified as a business expense. If a company is paying thousands, millions, or even billions in fines, it shouldn’t get a tax break for those same misdeeds, it should be held accountable. The current tax loophole is the worst kind of special-interest tax giveaway because it is allowing bad actors to subsidize their misdeeds. The law needs to change to ensure the punishment fits the crime. Congress needs to close this settlement loophole,” said U.S. Senator Jack Reed. “Federal agencies can take a more active, effective role in protecting taxpayers. Several federal entities have included specific clauses in their settlement agreements to prohibit penalties associated with the settlement from being deducted as a business expense. I urge more agencies to follow suit and publicly disclose the true value of these agreements.”
“A penalty should be meaningful or it won’t have the deterrent effect it’s supposed to have,” U.S. Senator Chuck Grassley said. “Federal agencies too often don’t consider the tax implications, but you can be sure the company does. The government should understand this. The public should be accurately informed of the real penalty even when taxes are considered. This bill will ensure that government agencies think of the tax consequences in settlements going forward and increase transparency for the public.”
“This much-needed legislation would close this outrageous tax loophole and would require companies to pay their fair share when they do wrong,” said Mario Salazar, Federal Legislative Director for U.S.PIRG.
You can read U.S. PIRG’s research report on the tax implications of legal settlements here: (link).