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Washington, D.C. – Statement by Francisco Enriquez, U.S. Public Interest Research Group Tax and Budget Program Associate, 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. It comes on the heels of reports that JPMorgan’s expected $13 billion settlement could be tax deductible.
“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.
“For every dollar that corporations claim in tax deductions for their wrongdoing, the public must pick up the tab in the form of cuts to public programs, higher taxes or higher government debt. The proposed legislation would help ensure that taxpayers don’t have to pay doubly for corporate misdeeds.
“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 JPMorgan 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 doing something about it.”
“If this legislation were already law, then we could rest assured that at least most of the expected JPMorgan settlement for lending abuses wouldn’t become a write off. “
You can read U.S. PIRG’s research report on the tax implications of legal settlements, “Subsidizing Bad Behavior: How Corporate Legal Settlements for Harming the Public Become Lucrative Tax Write-Offs.”
See U.S. PIRG’s recent commentary in the Huffington Post for more information about how JPMorgan Chase could take advantage of the settlement loophole in other pending cases.
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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.
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