Corporations Offset Fines and Penalties with Tax Write-Offs
Corporations Offset Fines and Penalties with Tax Write-Offs
When individual citizens are investigated and prosecuted for white collar crimes or other wrongdoing, they often agree to pay a financial settlement to the federal government as a way to avoid prison time or criminal charges. When corporations are in similar situations, they often go on to claim the settlement payments as tax-deductible business expenses, something individuals cannot do.
In effect, such corporations get taxpayers to foot the bill for their misconduct, according to a new study released by the U.S. Public Interest Research Group (U.S. PIRG) following a record year of corporate settlements.
“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,” explained study co-author Ryan Pierannunzi, a tax and budget expert with U.S. PIRG. “While debate rages over how to address our deficit, we can ill-afford to subsidize the misdeeds of corporations like BP and UBS.”
As the study details, federal law clearly states that punitive penalties and fines exacted by government agencies are not tax-deductible, but settlement agreements rarely specify what portion of the amount levied is regarded as punitive and what portion is compensatory.
Compensatory damages, i.e., dollar amounts to make up for actual losses, are tax-deductible. Corporate tax lawyers can take advantage of this ambiguity—and probably actively seek it—by treating the entire amount as compensatory and thus deductible. Both the Internal Revenue Service and the various agencies negotiating the agreements believe it is the responsibility of the other to clear up the ambiguity, according to the report.
http://www.allgov.com/news/where-is-the-money-going/corporations-offset-fines-and-penalties-with-tax-write-offs-130107?news=846679
