Wall St Settlement Should Not Be Tax Deductible, Say Senators

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

30 April 2003

Senators Charles Grassley and Max Baucus are proposing legislation that will prevent major Wall Street firms from writing off a portion of a $1.4 billion settlement as a tax loss.

The settlement between the government and ten investment banks brings to an end two years of investigations into allegations of unfair business practices by the firms in question, who were accused of issuing biased and inaccurate research in order to gain banking business.

The draft legislation introduced by Senate Finance Committee chairman Grassley, an Iowa Republican, and Max Baucus, the leading Democrat on the committee, seeks to clarify the law prohibiting firms deducting fines for potential violations of the law from their tax bills. However, payments made to compensate individual victims of wrongdoing would remain tax deductible, according to Grassley.

The banks in question appear not to have acknowledged any wrongdoing to the SEC (Securities and Exchange Commission), the state regulators and the stock exchanges concerned.

Nonetheless, says Grassley: "Allowing businesses to deduct a big part of the settlement's cost means taxpayers have to foot part of the bill". He continued: "What the firms are bragging about, this $1.4 billion, ends up being a lot less than $1.4 billion. That's a slap on (the) wrist, not a real punishment."

"Our bill will restore common sense into these settlements," announced Baucus, affirming his support of the action.

Recommended