Corporations get a break and taxpayers get screwed, due to the tax-deductibility of government-levied fines.
Believe it or not, when the government levies a fine on a corporation, some of that fine is tax-deductible. The IRS clearly states that corporations may not deduct punitive penalties or fines issued by a government agency. However, agencies are frequently not transparent about what portion is punitive. Anything that is deemed remedial is tax deductible for the corporation.
Government agencies sometimes make deals with corporate wrongdoers. They impose a hefty fine, then specify how much is considered punitive and not deductible, and lastly what is remedial, which is deductible for the corporation. This information can be kept secret. As such, the agency can brag about a hefty fine, but the corporation gets a significant tax deduction.
BP’s Big Tax-Break
When the B.P. Oil Co. had the big oil spill in the Gulf of Mexico, they were fined $61 billion of which $17 billion was tax-deductible. All the money given to clean up beaches and payments to businesses was deductible. Why? Any way you cut it, B.P was in the wrong.
In 2015 a PBS analysis revealed that from 2012 to 2015, the ten largest settlements levied by the Department of Justice, the SEC, the EPA, and the Consumer Financial Bureau amounted to $80 billion, and $48 billion of that was tax-deductible. These fines were levied on companies like B.P., Citigroup, and JP Morgan Chase.
How much money is really involved?
Here’s an idea of how much money is involved: fines paid by companies from 2012 to 2020 include Wells Fargo, $21.4 billion; Citigroup, $25.5 billion; and JP Morgan Chase, $35.8 billion (among others). What portions of those fines were tax-deductible? Only the companies and the agencies that levied the fines know.
This new law is complicated and will be tested in the courts. Until there is change, companies will bend the rules and taxpayers will pick up the slack.
Mattera, P. (2020a). Amazon.com | Violation tracker. © Good Jobs First. https://violationtracker.goodjobsfirst.org/prog.php?parent=amazoncom
Mattera, P. (2020b). Citigroup | Violation tracker. © Good Jobs First. https://violationtracker.goodjobsfirst.org/prog.php?parent=citigroup
Mattera, P. (2020c). JPMorgan Chase | Violation tracker. © Good Jobs First. https://violationtracker.goodjobsfirst.org/prog.php?parent=jpmorgan-chase
Mattera, P. (2020d). Wells Fargo | Violation tracker. © Good Jobs First. https://violationtracker.goodjobsfirst.org/prog.php?parent=wells-farg o&page=2
The United States Department of Justice. (2020, February 21). Wells Fargo agrees to pay $3 billion to resolve criminal and civil charges. https://www.justice.gov/opa/pr/wells-fargo-agrees-pay-3-billion-res olve-criminal-and-civil-investigations-sales-practices