Republican and Democratic Senator Propose Forbidding Companies From Writing Off Regulatory Penalties

Chris Gaetano
Published Date:
Apr 4, 2017

Today if a company is fined by a regulatory agency like the Securities and Exchange Commission, they're allowed to write off that loss on their taxes if it is not paid directly to the government as a penalty or fine. A bill proposed by Senator Charles Grassley (R - Iowa) and Senator Jack Reed (D - Rhode Island) would end that by requiring that companies and regulators work out exactly what fines and penalties are punitive and therefore cannot be the subject of tax write-offs, according to Accounting Today. The bill, called the Government Settlement Transparency & Reform Act, specifically requires the settling party and government to reach clear agreements on how settlement payments should be treated for tax purposes. It also lays out what's punitive, and therefore cannot be deducted, and what's not. 

Basically, the bill says that restitution for damage or harm done, costs associated with coming into compliance with the law, payments where no government or governmental entity is a party, or taxes due are deductible. Everything else is not. 

Further, the bill would require the government to file a return at the time of settlement that accurately states the tax treatment of amounts to be paid by offending businesses. 

“There shouldn’t be a tax write-off for corporate wrong doing.  This bipartisan bill would close the so-called 'settlement loophole' that currently allows bad corporate actors to write off billions in fines.  Companies that break the law shouldn’t get a tax break, they should be held accountable. The law needs to change to ensure that taxpayers aren’t subsidizing corporate misdeeds,” said Reed. “Even as punitive settlements grow in size, the punishment is being diluted in the form of tax savings for the wrong doer.  If the status quo continues it means taxpayers are being asked to subsidize more corporate wrong doing and that is unacceptable.”

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