You are hereHome >
In the news
As Bank of America prepares for a possible multibillion-dollar settlement with the government, the deal is expected to share a feature common to similar settlements with other banks – a big portion that’s tax-deductible as a business expense.
The Charlotte bank and the Department of Justice are negotiating the terms of a potential settlement of more than $16 billion over soured mortgage bonds, in a deal that has not been finalized but could be announced as early as next week.
In similar deals recently struck by the Justice Department with large U.S. banks, portions of the overall settlement amounts were designated as penalties, which banks aren’t allowed to write off.
But by law, banks can write off portions of their settlements that aren’t considered fines or penalties, such as payments to states affected by their alleged misconduct.
That means billions of dollars in Bank of America’s expected settlement could
The practice has sparked criticism from some who think banks should not receive the silver lining of a tax deduction for misdeeds said to have fueled the worst U.S. economic crisis since the Great Depression.
“It’s wrong to make ordinary taxpayers shoulder a portion of these settlements, and it’s wrong to dilute the deterrents that these settlements are supposed to represent for future wrongdoing,” said Phineas Baxandall, tax analyst at the United States Public Interest Research Group, a consumer-advocacy nonprofit.
“If they’re allowed to be deducted, it means legally that they’re being treated as a normal business expense,” he said.
A Bank of America spokesman declined to comment. A representative for the Justice Department also declined to comment.
.....Baxandall, the tax analyst for U.S. Public Interest Research Group, said the fact that a portion of settlements can be tax-deductible sends the wrong message to the public.
He said every dollar in tax write-offs for the companies has to be made up for by the government in higher tax rates, cuts to programs or more national debt.
“The way the public understands these settlements is that they are to atone for misdeeds,” he said.
“The really pernicious thing here is both the (government) agencies and the banks have an incentive to tout larger but illusory pretax numbers. The agency looks good because they get to hold up a bigger number. The company gets a better bottom line because it can get a big write-off.
“It’s a win-win for them. The only one who loses is the public.”
Your donation supports U.S. PIRG’s work to stand up for consumers on the issues that matter, especially when powerful interests are blocking progress.