There have been a few sticking points in the negotiations between the government and
JP Morgan in its historic $US13 billion mortgage settlement.
One of those points has been the tax deductibility of the settlement. The government did not want JPM to get any kind of tax benefit from penalty. JP Morgan, naturally, thought otherwise.
Now that all is said and done, though, it looks like up to $US7 billion of JP Morgan’s settlement could be tax deductible.
Of the $US13 billion settlement, $US9 billion is considered a penalty paid by the bank (the other portion goes home owner relief).
Of that $US9 billion, $US2 billion is definitely not tax deductible, according to the settlement, as that money is being paid specifically to address bad mortgages issued by JPM.
The rest of that $US9 billion, though, is meant to address bad mortgages issued by Washington Mutual and Bear Stearns. JP Morgan could still deduct those from its taxes, according to the agreement. How much exactly is up to the IRS.
This is sure to make a lot of people in Washington pretty angry.
Earlier this month, Americans for Tax Fairness and the U.S. PIRG presented Congress with a 160,000 signature petition asking the Justice Department to add a provision to the settlement that would stop this from happening, and a bunch of Congressmen have jumped on board, calling U.S. Attorney General Eric Holder to do something.
Then five Senators sent the DOJ a letter earn to “ensure the final settlement is clear about the tax treatment of the entire settlement amount and explicitly prohibits the tax deductibility of such payments.”
At the same time, Congressman Peter Welch (D-VT) has introduced a bill to the House that would end the corporate tax deductibility of all legal settlements, it’s called The Stop Deducting Damages Act(HR 3445).
His office is already out with a statement about the issue:
Washington, DC. (November 19th, 2013)- Rep. Peter Welch (D-VT) made the following statement after this afternoon’s announcement that J.P. Morgan and the U.S. Justice Department have reached final agreement on a $US13 billion settlement over J.P. Morgan’s role in the near collapse of the American economy in 2008. It appears that, under current law, a portion of the settlement would be tax deductible.
Welch said, “J.P. Morgan, whose conduct caused great harm to taxpayers and the American economy, should not ask the taxpayer to pay any portion of its penalty in this important settlement. Jamie Dimon should do the right thing and direct his accountants to forgo the exploitation of any tax loopholes that could reduce the burden imposed by this settlement. He should accept full responsibility for J.P. Morgan’s egregious conduct and that includes paying the full cost of this settlement.”
Rep. Welch and Rep. Luis Gutierrez (D-IL) recently sent a letter to J.P. Morgan CEO Jamie Dimon demanding that his company “accept the full payment of any fine.” They also introduced the Stop Deducting Damages Act (HR 3445) which would prevent corporations from reaching into the taxpayer’s pocket to pay their fines for breaking the law.
So it looks like this is going to be a bit contentious.
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