Boeing Will Not Deduct Record Legal Settlement

by Leroy Baker, Tax-News.com, New York

28 July 2006

Boeing's decision not to deduct a record legal settlement for tax purposes has been welcomed by senior Senator Chuck Grassley.

The possibility that the aeronautical giant would have been able to deduct the cost of the settlement from its taxes provoked an initially angry response from Grassley, whose committee has jurisdiction over taxation.

“It’s good Boeing won’t seek a tax deduction for its $615 million settlement. That’s the right decision," Grassley said in a statement.

Boeing agreed to settle with the government in June to resolve criminal and civil allegations that the company improperly used competitors’ information to procure billions of dollars worth of defense contracts.

However, Grassley expressed continuing concern that the Justice Department seemingly stood by whilst Boeing's lawyers considered whether the settlement was tax deductible.

"This tells me Department of Justice lawyers failed to take into account the settlement’s tax treatment and allowed Boeing’s lawyers to effectively negotiate a 35% discount. Any junior lawyer knows to look at a settlement’s tax treatment, yet Justice lawyers were asleep at the switch. That's inexcusable." remarked Grassley.

Responding to Grassley's criticism earlier this month, William E. Moschella, Assistant Attorney General, reiterated the Justice Department's long standing policy to remain "tax neutral" and to leave the "difficult issues of deductibility to the expertise of the tax lawyers and the Internal Revenue Service".

But Grassley said that the Justice Department must do a "better job" of paying attention to the tax consequences of settlements, and he has vowed to continue pursuing legislation clarifying what is and is not deductible in settlements.

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