For Immediate Release
Statement: JPMorgan Shouldn’t Receive Tax Windfall for London Whale Penalty
Taxpayers Could Shoulder $280 Million in Hidden Tax Subsidy Unless Agencies Prevent It
WASHINGTON - Statement by Francisco Enriquez, U.S. Public Interest Research Group Tax & Budget Associate, on a potential $800 million settlement with the SEC and other federal agencies related to JPMorgan Chase’s $6 billion “London Whale” misconduct.
“In their effort to hold JPMorgan Chase accountable for its $6 billion “London Whale” fiasco, the SEC and other federal agencies must also protect taxpayers by ensuring that the financial giant does not receive a whale of a tax windfall for its irresponsibility. Unless regulators explicitly forbid JPMorgan Chase from writing off an $800 million settlement as a tax deduction, taxpayers could end up shouldering 35 percent of the cost of the settlement.
“Federal law forbids companies from deducting public fines and penalties from their taxes, but payments made as part of a settlement are treated differently. Companies that negotiate penalties through a legal settlement typically manage to deduct these penalties as a tax write-off unless their settlement agreement specifically forbids it. In essence, companies are allowed to receive a tax subsidy for their wrongdoing.
“The bank’s admission of wrongdoing for not responding more quickly to the problem would not in itself be enough to stop the bank from using the expense as a tax write off. Agencies must be explicit about prohibiting the write off, as the SEC didwith Goldman Sachs in 2010 and the EPA and State Department typically do.
“When corporations treat their settlement fines as an ‘ordinary and necessary’ cost of doing business and take them as a tax write-off, ordinary Americans are left to pick up the tab. Every dollar that companies write off must be paid for through cuts to public programs, higher taxes or more government debt. That is unacceptable.
“Congress should close the settlement loophole to stop corporations like JPMorgan Chase from ripping off the American taxpayer.”
You can read U.S. PIRG’s report on the tax implications of legal settlements, “Subsidizing Bad Behavior: How Corporate Legal Settlements for Harming the Public Become Lucrative Tax Write-Offs.”
U.S. PIRG, the federation of state Public Interest Research Groups (PIRGs), stands up to powerful special interests on behalf of the American public, working to win concrete results for our health and our well-being. With a strong network of researchers, advocates, organizers and students in state capitols across the country, we take on the special interests on issues, such as product safety,political corruption, prescription drugs and voting rights,where these interests stand in the way of reform and progress.