When BP’s Deepwater Horizon spill released millions of gallons of oil into the Gulf of Mexico, and when a slew of Wall Street banks created toxic loans that contributed to the financial crisis, they made billion-dollar settlements with the Department of Justice. But according to a new report by the United States Public Interest Research Group, companies often write those whopping amounts off as tax deductible.
Since legal settlements for alleged wrongdoing aren’t technically fees, many companies categorize settlements with the government as an “ordinary and necessary cost of doing business,” according to the report.
“The public loses multiple times over when companies write off their settlements as tax deductions. First, the misconduct itself harms the public, such as through environmental damage, misleading marketing, mortgage fraud, dangerous products or other misdeeds,” the report said. “Second, taxpayers must make up for the foregone tax revenue by paying higher tax rates, cutting public programs, or adding to the national debt.”
Though corporations have paid more than $80 billion in legal settlements with government agencies since 2012, almost $48 billion of that sum was tax deductible. The report estimates that the write-offs could add up to $17 billion in lost tax revenue.
The Department of Justice, while usually the agency handling the highest-profile, big-ticket legal settlements, is the least likely to keep corporations for deducting legal settlements, the U.S. Public Interest Research Group found.