News Release

Bipartisan Legislators Come Together To Expose "Wrongdoing Write Offs"

House Bill Would Let Taxpayers See When Corporations Get Billion-Dollar Tax Breaks for Settling Charges of Wrongdoing
For Immediate Release

Washington, D.C. – Representatives Tom Cole (R-OK) and Matt Cartwright (D-PA) joined together today with Reps. Enyart (D-IL), Lofgren (D-CA), Lummis (R-WY) and Nugent (R-FL) to introduce the Truth in Settlements Act of 2014, which would expose "wrongdoing write offs," the loophole that lets corporations get big tax write offs when they pay out-of-court settlements to resolve charges of wrongdoing. For example, BP received a $10 billion tax break from writing off its Gulf oil spill settlement. JPMorgan is expected to take a $3.85 billion tax windfall for its recent settlement related to toxic mortgages that contributed to the financial crisis.

Increasing public attention has focused on out-of-court settlements that federal agencies sign with corporations in return for dropping charges related Wall Street scandals, oil spills, unsafe pharmaceutical practices, or other offenses. Agencies tout settlement amounts that sometimes reach billions of dollars, but the actual value can be substantially less because companies may be allowed to write off settlements as a tax deduction, amounts may actually include previously announced agreements, and may grant “credits” to companies for performing activities they would normally do anyway. The bill would require agencies to disclose these practices.

“I am pleased to introduce the bipartisan Truth in Settlements Act because encouraging transparency in government is the responsible thing to do. While it should go without saying, taxpayers deserve to know how their hardworking dollars are being utilized with unclassified projects. This legislation helps do that by requiring federal agencies to make taxpayers aware of not only the settlements reached on their behalf but the terms and conditions of those settlements as well,” said Representative Cole.

“This much needed legislation would compel transparency from both corporations and federal agencies,” said Representative Cartwright.  “Government has an obligation to disclose information when it is pertinent to the public’s interest and well-being.  If an agency chooses to reach a settlement with an offender, then that agency must be willing to disclose the terms of the agreement or come up with a good reason for not doing so.  We must hold offenders accountable for their actions.” 

The House bill (H.R. 4324), which is identical to a bipartisan Senate bill (S.1898), would require agencies to post online the amount and details of settlements over $1 million, including whether any portion would be allowable as a tax deduction and what part of the total is comprised of “credits” for other business activities. Corporations would also be required to declare in their SEC filings whether they have deducted settlements.

U.S. PIRG has been a watchdog on the practice of companies writing off their out-of-court settlements as tax deductions.  “Americans don’t deduct their parking tickets or library fines from their taxes. Corporations like JPMorgan or BP shouldn’t be able to deduct their settlements for wrongdoing, either,” said Phineas Baxandall, senior policy analyst with U.S. PIRG. “Ordinary citizens end up bearing the burden of these tax write offs. The public must make up for each dollar in settlement tax benefits through higher tax rates, cuts to public programs, or more federal debt.”

The Senate Truth in Settlements Act (S. 1898 – fact sheet) was introduced by Senators Elizabeth Warren (MA-D) and Tom Coburn (OK-R) on January 8th.

“I am pleased a companion bill has been introduced in the House,” Senator Coburn said. “Taxpayers deserve to know the details of settlements arranged with the federal government, including how much of the assessed penalties are tax deductible. Bringing these transactions into the light will provide Congress and the public with an accurate understanding of their true financial benefits and penalties.”

“When government agencies reach settlements with companies that break the law, they should disclose the terms of those deals to the public,” said Senator Warren. “Anytime an agency decides that an enforcement action is needed, but it is not willing to go to court, that agency should be willing to disclose the key terms and condition of the agreement. Increased transparency will shut down backroom deal-making and ensure that Congress, citizens and watchdog groups can hold regulatory agencies accountable for strong and effective enforcement that benefits the public interest.”

Mr. Baxandall added, “With bipartisan support now in the House and Senate, there’s no excuse for this commonsense reform not to become law. Settlement agreements are signed in the name of the American public and we should be able to see what’s in them,” he added.

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.

U.S. PIRG has created a fact sheet on the settlement loophole, and separate factsheets on settlement write offs related to: Wall Street scandals, consumer rip offs, and health care scams.

U.S. PIRG’s research and analysis of legal settlement write offs has been featured in the New York Times, the Washington Post, and the Associated Press.

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