Washington (April 30, 2003) -- Legislation introduced by Sen. Chuck Grassley, chairman of the Committee on Finance, and Sen. Max Baucus, ranking member, would limit the amount of a government settlement which can be tax deductible. If approved, the legislation will affect the $1.4 billion conflict-of-interest settlement between the Securities and Exchange Commission and 10 Wall Street firms.
The bill makes clear that payments made to acknowledge actual or potential violations of any law are not tax-deductible. The bill denies a deduction for any such payment, including those where there is no admission of guilt or liability and those made to avoid further investigation or litigation. Payments made for real restitution to harmed people would remain tax-deductible.
Grassley said he was disturbed by reports that the Wall Street firms in the global settlement, which stems from allegations of stock research tainted by conflicts of interest, are likely to deduct one-third or more of their $1.4 billion payment from their taxes. The firms' insurance companies could foot some of the bill, too.
"Allowing businesses to deduct a big part of the settlement's cost means taxpayers have to foot part of the bill," Grassley said. "What the firms are bragging about, this $1.4 billion, ends up being a lot less than $1.4 billion. That's a slap on wrist, not a real punishment."
-- WebCPA staff
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