Most people think of tax write-offs as a benefit of money given to charity or expenses related to running a small business. Corporations play by a different set of rules. In their world, costs related to financial settlements with the government for wrongdoing can be written off, reducing the real-world effect of the imposed fines and reducing the revenues the government collects.
The U.S. Public Interest Research Group (U.S. PIRG) and Americans for Tax Fairness are trying to make sure the same thing doesn’t happen with JPMorgan Chase’s expected $13 billion settlement with the government. The bank reportedly could claim as much as $4 billion of that total as a tax deduction unless the terms of the agreement prevent it from doing so.
In Washington today, the groups presented the Justice Department with 160,000 signatures on a petition asking that the bank not be allowed to write off costs related to the settlement. The two groups, along with 72 other advocacy organizations, also sent a letter to Attorney General Eric Holder urging him to make sure JPMorgan can’t deduct the settlement payments from its taxes. “As your enforcement actions unfold, it is important that the American people —already victimized once by Wall Street’s malfeasance — not be forced to pick up more of the tab,” the letter said.
Last week, five Democratic senators sent a separate letter to Holder asking him “to prevent taxpayers from footing Wall Street’s penalty bill.”
“Taxpayers should not be subsidizing more than $3 billion of JPMorgan’s penalties at a time when federal priorities like education, clean energy, infrastructure and other job creating investments are facing budget cuts. This settlement has to be meaningful if it is going to deter future abuses,” one of the senators, Mazie K. Hirono (D-HI), said in a statement Monday.
A study released by U.S. PIRG early this year finds that corporations often take advantage of ambiguity in their government settlements to lessen their fines by writing off the costs – or at least large portions of them – as business expenses. Essentially, this means that companies receive a tax benefit for their wrongdoing. The report did not specify the total amount these settlement cost taxpayers, but it did indicate that writing off settlement costs is a common practice among big companies.
U.S. PIRG called on the government to make a number of changes, including informing the public of the amount of money corporations deduct for costs related to settlements in order to give a better idea of the actual amount of settlements. The group also called for changes to U.S. law to prevent corporations from deducting settlement costs.
Prohibiting companies from writing off these legal costs has a precedent: DOJ barred the oil giant BP from deducting its $4.5 billion settlement with the agency for the Gulf oil spill, eliminating a $1.7 billion tax break. But BP had already received a $10 billion tax break from payments made earlier.