How BP’s $18.7 Billion Gulf Spill Fine Could Be One Giant Tax Deduction

From Newsweek :

On Thursday, the oil company BP reached an agreement to pay $18.7 billion to settle all the remaining federal and state claims from the years of litigation following the catastrophic 2010 Gulf oil spill. But thanks to provisions in the tax code, they might be able to deduct a large chunk of that sum from their taxes.

According to tax code, when a company pays a fine, the company is free to write it off their corporate income taxes, unless the fine is expressly for violation of the law. Typically that's indicated by the fine being called a “penalty,” meant to punish the company for wrongdoing. If the language of the settlement describes the fine differently—as “money to resolve claims,” or money used for restoration, for example—the fine can be treated for tax purposes as a business expense. Or, put another way, the fines can be treated as though they were “just compensating for damages that happened, the same way as you were a company that cleaned someone’s rugs and you spilled something on their rugs, you pay them to replace their rug,” explained Phineas Baxandall, the senior tax and budget policy analyst at the U.S. Public Interest Research Group (U.S. PIRG), a consumer-oriented nonprofit that advocates against such write-offs.

But in a fact sheet published Thursday, the DOJ does not refer to the remaining $13.2 billion of the settlement using “penalty” language. Over the next 18 years, BP will pay $8.1 billion for “natural resource damages,” the fact sheet states. $5.9 billion will be split between five states and several local governments to “settle claims” for spill-related “economic damages,” and the remaining $600 million will go to an array of other unresolved damage claims, including the cost of doing the natural resource damage assessments. This fact sheet is not the final agreement, but it could indicate that the remaining $13.2 billion could be written off by BP.

In BP does write off the remaining $13.2 billion as losses of corporate income, which is taxed at 35 percent, the fine could amount to $8.58 billion in tax deductions for the company. The actual tax value of the whole settlement, then, would be $14.08 billion, not $18.7 billion.

http://www.newsweek.com/how-bps-187-billion-gulf-spill-fine-could-be-one-giant-tax-deduction-349637