WASHINGTON Nov 6 Banks and corporations would
no longer be able to claim tax deductions for certain payments
made under legal settlements with the U.S. government involving
alleged business misconduct, under bipartisan legislation
offered on Wednesday in the U.S. Senate.
Senators Charles Grassley and Jack Reed offered the bill.
"Congress needs to close this settlement loophole," said Reed, a
Democrat, in a statement.
Grassley, a Republican, has previously introduced similar
legislation and it has failed to win passage and become law.
Under present law, banks and corporations may not deduct
from their taxable income the costs of paying fines and
penalties directly to the federal government. But they may write
off payments that are not made directly to the government.
For example, JPMorgan may be able to get a deduction
for $4 billion in aid to struggling mortgage borrowers it would
pay as part of a proposed settlement, Reuters reported.
JPMorgan has been negotiating with the Justice Department
over the details of a $13 billion settlement over the bank's
mortgage bonds. Tax deductibility has been a sensitive issue in
these settlement talks, sources have told Reuters.
A JPMorgan spokesman declined to comment on the bill.
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