Sens. Jack Reed (D-RI) and Chuck Grassley (R-IA) Introduce the Government Settlement Transparency and Reform Act to Bar Tax Deduction of Settlement Payments
Washington, D.C. – Statement by Michelle Surka U.S. Public Interest Research Group Tax and Budget Program Advocate, on legislation introduced today by U.S. Sens. Jack Reed (D-RI) and Chuck Grassley (R-IA) that would prevent corporate wrongdoers from reaping massive tax windfalls from the payments made to settle allegations of criminal wrongdoing.
“We applaud Senators Reed and Grassley for introducing legislation to address the outrageous tax deductions corporations often take for settlements they pay for harming the public. That’s adding insult to injury.
“Ordinary Americans lose multiple times over when corporations are allowed to claim deductions for their wrongdoing. We first suffer the harms of corporate misdeeds, whether those be wrongful foreclosure or environmental damage. Then, we are forced to shoulder the burden of settlement payments as these corporations claim their penalties as tax deductions. Finally, the deterrent power of these payments is decreased, and so corporations are likely to again act recklessly.
“We saw this happen the BP and the damage they caused in the Gulf. The oil giant’s payments were subsidized by taxpayers to the tune of a $15.3 billion tax write off.
“While federal law forbids companies from deducting public fines and penalties from their taxes, payments made as part of a settlement can be treated differently. Companies that cut deals with an agency to resolve charges through a legal settlement typically manage to deduct the penalties as a tax write-off unless specifically forbidden from doing so. In essence, companies are allowed to receive a tax break for their wrongdoing. That shouldn’t happen.
“Ordinary citizens don’t deduct their parking tickets or library fines from their taxes. Corporations like shouldn’t be able to deduct their settlements for wrongdoing either. The settlement loophole costs taxpayers billions each year. It needs to be closed and we applaud Senators Reed and Grassley for continuing to stand up against these absurd loopholes.
You can read U.S. PIRG’s research report on the tax implications of legal settlements, “Settling for a Lack of Accountability”. This report found that the largest corporate settlements over a single three-year period totaled nearly $80 billion, and corporations could claim business deductions for at least $48 billion of that amount.
See Senator Grassley’s announcement here.