No Tax Write-Offs For Wrongdoing

END WRITE OFFS FOR WRONGDOING

Paying for misdeeds shouldn’t be a tax write off. Unlike regular citizens and small businesses, large corporations accused of wrongdoing like oil spills and mortgage scams typically negotiate out-of-court settlements to resolve charges from government regulators. The company agrees to make a payment and the government agency agrees not to prosecute the alleged misdeed. Annually, billions of dollars are exchanged between corporations accused of crimes and government agencies attempting to hold them accountable.

These settlements shouldn’t just be another cost of doing business.

Unfortunately, that’s exactly what these payments often end up being. 

Unless agencies specify otherwise, these corporations usually deduct the costs of out-of-court settlements on their taxes as ordinary business expenses, leaving taxpayers to pick up the tab. 

Especially when Congress is struggling to reduce budget shortfalls, every dollar that corporate wrongdoers avoid paying by deducting a settlement must be made up for through higher tax rates for others, cuts to public programs, or an increase in the national debt.

The public often can’t even know when these settlement agreements come with a tax deduction because there are no standards for transparency. Government agencies aren’t required to publish the settlement agreements or publicly post the details, and corporations don’t disclose whether or not they deduct the payments from their taxes.

That’s how Bank of America, accused of consumer fraud that contributed to the financial crisis, can write off up to $11 billion of their recent settlement agreement and leave taxpayers to pick up the tab, with no one the wiser.

THERE IS A SOLUTION

We’re calling on Congress to pass bipartisan common-sense legislation to restrict write offs for wrongdoing. We are also supporting a bipartisan bill to make settlement agreements between government agencies and corporations more transparent, so that Americans can know the real value of the deals being signed on their behalf. In the meantime, we’re pushing agencies to update their settlement policies and deny tax deductions for corporate misbehavior. 

Issue updates

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Corporate Accountability

Letter to the Editor in the New York Times calling on the Department of Justice to end write offs for corporate wrongdoing. 

"If the Justice Department wants to get serious about holding corporations accountable for their misconduct, the department should certainly use new tools like holding people personally accountable. But the old tools, like settlement payments, need some sharpening, too."

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News Release | U.S. PIRG | Tax

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U.S. commends a House bill to disclose when agencies allow corporations to write off as a tax deduction the out-of-court settlements they sign with corporations requiring payment to resolve charges of wrongdoing. A counterpart bill was already introduced in the Senate.

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Following the Money

This report evaluates states’ progress toward “Transparency 2.0” – a new standard of comprehensive, one-stop, one-click budget accountability and accessibility. At least 7 states have become leaders in the drive toward Transparency 2.0, launching easy-to-use, searchable Web sites with a wide range of spending transparency information.

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Corporate tax avoidance leaves taxpaying households to pick up the tab for funding highways, schools, and other public structures. Much of the indirect costs of aggressive tax avoidance are also borne by investors who are unaware of these risky schemes. And everybody suffers when corporate profitability is determined by opportunities for tax evasion rather than efficiency or innovation.

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