Hidden cost: Corporations see lower tax bill when they settle with the government
When Bank of America agreed in Decemberto pay $335 million to resolve federal charges that its mortgage-lending arm discriminated against black and Hispanic borrowers, government officials hailed it as the largest fair-lending settlement in history.
But, in fact, the banking giant has the right to a massive discount on the payout. Thirty-five percent of the settlement is deductible. That means Bank of America could wind up saving $117 million on its tax bill.
Over the past year, federal prosecutors and regulators have lauded a series of multimillion dollar settlements against big corporations that have done everything from duping customers into buying unneeded products to foreclosing on active-duty troops. But little mentioned is a tax law that takes these firms off the hook for a huge chunk of that money.
Corporations can write off any portion of a settlement that is not paid directly to the government as a penalty or fine for violation of the law. A majority of the settlements that federal regulators announced in the past year include some form of restitution that is eligible for a tax deduction.
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