RI-Sen: Jack Reed (D) Introduces Bill To End Tax Breaks For Corporate Settlement Costs

I like Senator Jack Reed (D. RI) and I'm always looking for good stories to write about him.  This is one of them:

http://www.accountingtoday.com/...

A pair of senators have introduced bipartisan legislation that would rescind tax write-offs for illegal corporate behavior in an effort to hold corporate wrongdoers accountable.

Senators Jack Reed, D-R.I., and Chuck Grassley, R-Iowa, introduced the Government Settlement Transparency & Reform Act, which aims to close a loophole that has allowed some corporations to reap tax benefits from payments made at government direction stemming from settling misdeeds.

Corporations accused of illegal activity routinely settle legal disputes with the government out of court because it allows both the company and the government to avoid the time, expense and uncertainty of going to trial, the senators noted. Federal law prohibits companies from deducting public fines and penalties from their taxable income. But under current law, offending companies may often write off any portion of a settlement that is not paid directly to the government as a penalty or fine for violation of the law. This allows some companies to lower their tax bill by claiming settlement payments to non-federal entities as tax deductible business expenses.

“A penalty is supposed to deter others because it causes pain to a company’s bottom line,” Reed said in a statement. “If a company is paying thousands, millions, or even billions in fines, it shouldn’t save money for those same misdeeds, it should be held accountable. The law needs to change to ensure the punishment fits the crime.  Congress needs to close this settlement loophole.” - Accounting Today, 11/6/13

Here's a little more info:

http://www.latimes.com/...

“A penalty is supposed to deter others because it causes pain to a company’s bottom line," Reed said. "If a company is paying thousands, millions, or even billions in fines, it shouldn’t save money for those same misdeeds. It should be held accountable.”

Their bipartisan Government Settlement Transparency and Reform Act is similar to the Stop Deducting Damages Act introduced in the House last week by Democrats Peter Welch of Vermont and Luis Gutierrez of Illinois.

Federal law prohibits companies from deducting fines and other penalties paid to the government. But the law allows write-offs for settlement payments "to non federal entities," Reed and Grassley said.

A report in January by the U.S. Public Interest Research Group found that even though the law is clear that punitive fines and penalties issued by government agencies are not tax deductible, settlements often are not clear on how much of the payment amount is punitive.

The ambiguity allows companies to deduct the cost of some of the penalties.

The Wall Street Journal reported last week that JPMorgan's $5.1-billion settlement with the federal regulator for Fannie Mae and Freddie Mac would be entirely tax deductible, giving the bank as much as a  $1.5-billion write-off.

JPMorgan could get more deductions if other parts of a potential $13-billion settlement with the Justice Department are deemed tax deductible.

That has sparked anger among some lawmakers and consumer advocates. - Los Angeles Times, 11/6/13

Grassley had this to add:

http://blogs.marketwatch.com/...

“A penalty should be meaningful or it won’t have the deterrent effect it’s supposed to have,” Grassley said.  “This issue comes up regularly, and this bill would make deductibility clear going forward.” - Market Watch, 11/6/13

Now what about Reed and Grassley's bill's fate?

http://www.reuters.com/...

The Justice Department did not immediately respond to requests for a comment.

On Tuesday, Democratic Senator Bill Nelson called on congressional budget negotiators to consider closing the settlement deductibility loophole.

Though the Reed-Grassley bill faces long odds, regulators are already getting tougher on the tax deductibility issue in recent settlements, said Robert Wood, a tax lawyer who has written about the issue.

This week's settlement between SAC Capital Advisors and federal regulators, a $1.2 billion deal, barred the company from claiming cost-related tax deductions, Wood said.

"There is more sensitivity to this now," Wood said. "Maybe, by attrition, Grassley is winning."

The consumer advocacy group Public Citizen praised the Reed-Grassley bill. "A corporate penalty is effective only if it hits the company where it hurts: in their bottom line," said Lisa Gilbert, a director with the good government watchdog group. - Reuters, 11/6/13

If you would like more information on the Reed-Grassley bill, please contact either one of the Senators for more information:

Jack Reed (D. RI): (202) 224-4642

http://www.reed.senate.gov/...

Chuck Grassley (R. IA): (202) 224-3744

http://www.grassley.senate.gov/...

By the way, happy to see Reed co-sponsor this bill with my home state Senator Bob Casey (D. PA):

http://www.foodbusinessnews.net/...

Senator Robert Casey of Pennsylvania on Oct. 31 introduced the Extend Not Cut SNAP Benefits Act (S.1635) that would amend the American Recovery and Reinvestment Act of 2009 to extend the period during which Supplemental Nutrition Assistance Program benefits were temporarily increased. SNAP benefits were raised in the wake of the 2008-09 recession during which millions of Americans lost their jobs and the prospects for securing new employment were dim. But the increased benefits expired on Nov. 1, resulting in an estimated $11 billion reduction in SNAP spending ($5 billion in fiscal 2014 and a total of $11 billion over three years).

A companion bill (H.R. 3353) was introduced on Oct. 28 in the House of Representatives by Representative John Conyers of Michigan.

The bills would extend the enhanced SNAP benefits for one year, and the extension would be retroactive so those who lost benefits or saw them reduced on Nov. 1 would see them restored and would be compensated for benefits lost during the interim.

Mr. Casey’s bill was co-sponsored by Senators Patrick Leahy of Vermont, Jack Reed of Rhode Island, and John D. Rockefeller IV of West Virginia. It was referred to the Senate Committee on Agriculture, Nutrition and Forestry. - Food Business News, 11/6/13

Even though he's safe for re-election, if you'd like to thank Reed for his hard work, please do consider contributing to his 2014 re-election bid:
http://www.jackreed2014.com/