Anybody who keeps up with daily news reports on a regular basis knows that all too many corporations commit crimes and engage in other wrongdoing on a fairly large scale. But many may be surprised to learn that the offending companies agree to financial settlements with the federal government in most of the cases brought by the Justice Department. Even fewer probably know that the companies are then allowed to claim such settlement payments as tax-deductible business expenses. A new study, released by the U.S. Public Interest Research Group (USPIRG), follows a record year of corporate settlements. Ryan Pierannunzi, tax and budget associate with USPIRG, had this to say:
When corporations treat the financial payments they must make as a result of their wrongdoing as ordinary costs of doing business, they force taxpayers to pick up the tab. While debate rages over how to address our deficit, we can ill-afford to subsidize the misdeeds of corporations like BP and UBS.
The study – “Subsidizing Bad Behavior: How Corporate Settlements for Harming the Public Become Lucrative Tax Write Offs, with Recommendations for Reform” – shows that federal law is supposed to forbid corporations from deducting the cost of fines and penalties, including when corporations agree to pay these punitive measures as part of a negotiated settlement. But, unless explicitly ordered otherwise in some manner, corporate wrongdoers utilize ambiguities in the tax law to avoid paying a significant portion of the settlement payments. For example, the study found that the $1.5 billion settlement that UBS agreed to recently could burden taxpayers with up to $245 million in tax subsidies. That was said to be a hidden bank fee.
The report from the study offers several recommendations to the federal government which would allow the government agencies to better protect taxpayers from having to pay for portions of corporate settlements. That would help alert the public to what’s going on. USPIRG says that agencies should be instructed to publicize the expected after-tax amounts of settlements, which would more accurately report the net penalty that will be paid by the corporation. USPIRG also wants President Obama to instruct federal regulatory bodies to assume full responsibility for determining the extent to which settlement payments are punitive and therefore nondeductible. Pierannunzi had this to say about the current situation:
When companies treat public harm as an acceptable business risk, agencies should forbid tax deductibility of settlement payments. Congress should prohibit the tax deduction of punitive settlement payments to private parties. The tax treatment of settlements has a very real impact on peoples’ lives. Every dollar that doesn’t get paid to the Treasury means another dollar in debt, cutbacks, or higher taxes that the rest of us must bear.
The correct course of action would be for the federal government to require all monetary settlements to be with after-tax dollars. It’s simply wrong to allow a corporation to violate the law, settle all charges, pay a fine, and then take a tax write-off. Hopefully, President Obama and Congress will listen to the recommendations and take the needed actions. If you agree let the President and your members of Congress know how you feel by writing them.
Source: Corporate Crime Reporter
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