Still, given the large dollars at stake, the bank may well be able to negotiate for tax deduction language or at least for language that doesn't preclude it. JPMorgan Chase is facing bigger issues than taxes. Yet the government had refused to address taxes in the underlying agreement. The IRS said the only way Fresenius could deduct the payments would be if the settlement agreement expressly allowed it. The company deducted the payments, but the IRS claimed they were non-deductible penalties. It paid a criminal fine of $101 million and a civil settlement of $385 million. Fresenius (a medical device company) resolved claims for criminal and civil health care fraud. But the government often won’t agree, as occurred in Fresenius Medical Care Holdings Inc. Was JP Morgans 1.5 billion writedown driven by Merrill Lynch Thats what JP Morgan told Financial Times this morning. It is sometimes even possible to settle with a government agency and explicitly address taxes in the settlement agreement, specifying that any “fine” is actually remedial rather than punitive in character. But if it is remedial, it may be deductible despite a “fine or penalty” label. If the fine or penalty is intended to be punitive, then the payment is probably nondeductible. In determining what is a nondeductible fine or penalty, names alone are not controlling. See BP, Oil, and Deducting Punitive Damages. Exxon’s $1.1 billion Alaska oil spill settlement cost Exxon $524 million after tax. More recently, BP’s Gulf spill raised similar issues. In reality, many companies deduct settlements, even those that are quasi-fine-like in character.
#JP MORGAN WRITEDOWN CODE#
The tax code prohibits deducting ‘‘any fine or similar penalty paid to a government for the violation of any law,’’ including criminal and civil penalties plus sums paid to settle potential liability for fines.
At the same time, some admissions may allow deductions, even for some fines or penalties. That would make taxpayers bear 35% of the cost of the settlement.Ĭan JPMorgan Chase find a way to deduct the $13 billion in the absence of an express prohibition? It depends, but the nature and scope of any admissions of fault may be pivotal. The group claims that unless JPMorgan Chase is explicitly forbidden, it will write off the settlement. Public Interest Research Group thinks precluding JPMorgan Chase from claiming tax deductions should be explicit to safeguard taxpayers. For that reason, defendants want a settlement agreement to confirm that payments are not penalties and are remedial. Tax language in settlement agreements doesn’t bind the IRS, but it goes a long way toward avoiding tax disputes. Despite their punitive sounding names, some fines and penalties are viewed as remedial (and thus deductible) rather than penal in nature.
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