By Peter Schroeder - 11/06/13 10:33 AM EST
A bipartisan pair of senators wants to bar corporations from using tax breaks to write off portions of penalties paid to the government for bad actions.
Sens. Jack Reed (D-R.I.) and Chuck Grassley (R-Iowa) did not name specific firms in unveiling their bill Wednesday, but the legislation appears to be aimed squarely at JPMorgan Chase, which is in the process of finalizing a record settlement with the federal government.
The nation’s largest bank is hammering out a $13 billion settlement with the government over charges of misleading activity leading up to the financial crisis. But lawmakers in both parties have expressed outrage at the notion that the bank might be able to write off billions of dollars of that settlement, and are ramping up pressure to try and stop it.
“A penalty should be meaningful or it won’t have the deterrent effect it’s supposed to have,” he said in a statement. “This issue comes up regularly, and this bill would make deductibility clear going forward.”
The bill introduced by Reed and Grassley would close what they argue is a tax code loophole. Corporations that settle with the government over charges of illegal activity cannot deduct the cost of penalties paid directly to the government. But the current code does allow them to write off additional sums paid out under the settlement, but not directly to federal agencies. For example, any amounts JPMorgan is ordered to pay to damaged investors or struggling homeowners would technically be deductible.
A portion of the settlement already finalized, a $4 billion deal with the Federal Housing Finance Agency, also appears to be deductible, as the bank agreed to paid the sums to housing giants Fannie Mae and Freddie Mac after facing charges of misleading them when selling mortgage-backed securities.
Earlier this month, a pair of liberal advocacy groups presented the Justice Department with more than 160,000 petitions urging them to bar any tax breaks for the bank. And Reps. Peter Welch (D-Vt.) and Luis Gutiérrez (D-Ill.) have introduced legislation similar to the Senate bill, barring companies from deducting the costs of settlements struck on federal charges.