JPMorgan—whose fraudulent mortgage claims helped take down the economy in 2008—will likely be able to write off its much-touted $13 billion fine as a business expense, meaning U.S. taxpayers would help foot the bill.
The potential loophole in a penalty that was already dwarfed by the bank's massive profits has critics charging that the fine is not justice served, but just the price of doing business.
"What is the point of fining JPMorgan these large amounts if the taxpayer is picking up the tab?" asks D.S. Wright, writing for FiredogLake.
JPMorgan has reached a tentative agreement with the U.S. Justice Department to pay a record-setting $13 billion in fines. While negotiations are still ongoing, $9 billion of this penalty is expected to go to the government, while $4 billion will go to the Federal Housing Finance Agency to allegedly end up in the hands of customers who were swindled by the bank.
Yet, JPMorgan may be able to write off a huge swath of these expenses.
"Section 162(f) of the tax code bars deductions for fines and penalties paid to the government, but JPMorgan might be able to negotiate an agreement to classify the payments as something else," Kim Dixon and Brian Faler of Politico write. "Those payments labeled compensatory or for restitution are more likely to be deductible."
"I think it's a safe bet that a substantial portion of the deal will be deductible," Dean Baker, co-director of the Center for Economic and Policy Research, told Common Dreams.
The wording of the final agreement will determine which penalties are tax deductible. "If the settlement is formally called a penalty or fine then it would not be deductible," said Baker. "If it's something other, like compensation, then it probably is."
Steve Rosenthal, a former corporate lawyer and fellow at the Tax Policy Center, told Politico it is likely that the FHFA payments will be written off as tax deductions. “I am guessing it is probably described in a way that allows JPMorgan to deduct,” he said.
This means that U.S. taxpayers may be forced to help JPMorgan pay its fines.
“There might be a reason for the government to negotiate an agreement which assures the deductibility of [certain] payments by JPMorgan Chase,” said George Yin, a law professor at the University of Virginia and former chief of staff at the congressional Joint Committee on Taxation, in an interview with Politico. “In that case, [JPMorgan] might be willing to agree to a larger gross settlement amount, which might play well for the government.”
Yet, as Robert Scheer writing for Truthdig points out, even if JPMorgan did pay the whole $13 billion fine, it would only represent half of the profit the company turned last year alone.