BP Settlement Could be Deductible

While BP’s $20.8 billion dollar settlement has been described as the largest-ever, it may not be as punitive as it appears. The U.S. Public Interest Group (PIRG) said that BP may be able to write off more than $15 billion of the settlement.

PIRG says quirks in the U.S. tax code will allow BP to write the payments off as deductible costs of business. 

The $32 billion BP spent cleaning up the spill in the Gulf of Mexico was also tax deductible, and, ultimately, cost U.S. taxpayers about $10 billion.

U.S. businesses get to deduct most legal expenses and payments made to resolve litigation. Meanwhile, fines and penalties paid directly to the government are not tax deductible.

A federal court ruling said the Deepwater Horizon spill was due to gross negligence and the government could have issued about $13.7 billion in penalties under the Clean Water Act. But, the feds have only issued $5.5 billion in penalties. Most of the monies spent by BP have been for restoration efforts in multiple states and BP can treat them as a tax deductible costs.

BP will also be allowed to make $1.1 billion in payments over the next 18 years, which could erode the value of the payments due to inflation.

The PIRG report states: “Federal agencies should disallow tax deductibility of settlement payments when companies wrongly treat public harm as an acceptable business risk. In cases where company costs truly are incurred from normal business activities, regulators should clearly define and distinguish, in the settlements, between the agreed-upon punitive payments which will not be tax deductible and normal costs of doing business.”

Click here to read PIRG’s full report.