Taxpayers Win: EPA Bars Safeway from Using Settlement as a Tax Write-Off

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Statement by Francisco Enriquez, U.S. PIRG Tax and Budget Associate, on Wednesday’s announcement of Safeway’s settlement with the Environmental Protection Agency related to violations of the Clean Air Act.

“Good news for taxpayers: The settlement agreement announced Wednesday by the Environmental Protection Agency bars Safeway Inc. from using its Clean Air Act violation settlement as a tax write-off. We applaud the EPA for holding Safeway Inc. fully accountable for its actions, and not letting them stick taxpayers with the tab for their wrongdoing.

“Federal law forbids companies from deducting public fines and penalties from their taxes, but payments made as part of a settlement are treated differently. Companies that negotiate penalties through a legal settlement typically manage to deduct these penalties as a tax write-off unless their settlement agreement specifically forbids it. In essence, companies are allowed to receive a tax subsidy for their wrongdoing.

“When corporations treat their settlement fines as an ‘ordinary and necessary cost’ of doing business and take them as a tax write-off, everyday Americans are left to pick up the tab. Every dollar that companies write off must be paid for through cuts to public programs, higher taxes or more government debt. That is unacceptable.

“Unfortunately, most federal agencies don’t make it a general practice to include language in their settlement agreements that specifically forbids corporations from deducting the settlement from their taxes. BP famously received a $10 billion tax windfall for deductions related to the Gulf oil spill.

“Rather than making the American public foot the bill for corporate wrongdoing, federal agencies should adopt the recommendations from the Government Accountability Office’s 2005 study, which urged agencies to provide the IRS with the information it needs to ensure that taxpayers do not have to shoulder the cost of corporate wrongdoing. Furthermore, Congress should close this settlement loophole to stop corporations from ripping off the American taxpayers.”

You can read U.S. PIRG’s report on the tax implications of legal settlements, “Subsidizing Bad Behavior: How Corporate Legal Settlements for Harming the Public Become Lucrative Tax Write-Offs.”

U.S. PIRG’s research and analysis of legal settlements has been featured in the New York Times, the Washington Post, and the Associated Press.

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U.S. PIRG, the federation of state Public Interest Research Groups, is a consumer group that stands up to powerful interests whenever they threaten our health and safety, our financial security, or our right to fully participate in our democratic society.