Senators Question Tax Deductibility Of Boeing Settlement

by Mike Godfrey, Tax-News.com, Washington

11 July 2006

A group of senior United States Senators have expressed alarm over reports that aerospace giant Boeing may be able to deduct a record $615 million legal settlement with the government for tax purposes.

“I’m very troubled that Justice Department officials have reached a $615 million settlement and don’t seem to have a ready answer as to whether Boeing will be able to deduct the settlement payment," stated Sen. Chuck Grassley, Chairman of the Senate Finance Committee, which has jurisdiction over taxes.

"If Boeing is able to deduct the settlement because the Justice Department did not characterize it as a penalty, the real penalty to Boeing could be millions and millions of dollars less than advertised," he added.

In June, Deputy Attorney General Paul J. McNulty announced that the United States had reached a final agreement with Boeing on a record $615 million settlement, to resolve criminal and civil allegations that the company improperly used competitors’ information to procure contracts for launch services worth billions of dollars from the Air Force and the National Aeronautics and Space Administration.

The $615 million settlement includes a $565 million civil settlement and a $50 million monetary penalty, according to a separate criminal agreement.

Grassley has signed a letter written by Sen. John McCain (R - Ariz) and Sen. John Warner (R - Va) to Attorney General Alberto Gonzales asking for clarification of whether the settlement will be tax deductible. They also expressed concern that the settlement may lead to Boeing passing the cost of its misconduct on to its insurers.

"In our view this would be unacceptable," the Senators wrote.

"Congress has pressed hard for a real change in defense acquisition and corporate ethics. We are not interested in settlements that are designed to look good in newspaper headlines but fail to bring real accountability," the letter stated.

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