Critics of a tax loophole that permits companies to save millions of dollars by deducting any court-ordered punitive damages as an ordinary business expense say the arrangement leaves taxpayers effectively subsidizing corporate misconduct.
“This tax loophole allows corporations to wreak havoc and then write it off as a cost of doing business,” says Senator Patrick Leahy, Democrat of Vermont, who introduced a bill last month to outlaw the deductibility of punitive damages. “That undermines the whole point of punitive damages.”
As The New York Times reports, at least 80% of the more than $42 billion that BP has paid out because of the 2010 Deepwater Horizon rig explosion that killed 11 people and spewed oil into the Gulf of Mexico qualifies for a tax deduction, according to U.S. PIRG. That has saved an estimated $10 billion to $14 billion for the company. The exact amount is uncertain because of the lack of transparency, the group says.
Which payments are deductible and which are not is often a mystery to the public. The overwhelming majority of cases, whether with a government agency or private individuals, are settled, enabling companies to hide just how much of the agreement’s sticker price is eligible for a write-off.
Brandon Garrett, a law professor at the University of Virginia and author of Too Big to Jail, says that BP was “asking taxpayers, in effect, to pay for the victim compensation fund it agreed to set up.”
“Any future penalties should not permit massive hidden tax write-offs,” he says.
The $13.7 billion in additional fines related to violations of the Clean Water Act that a judge is currently reviewing will not be tax-deductible. Read the full story.
