[Congressional Record (Bound Edition), Volume 163 (2017), Part 4]
[Senate]
[Page 5230]
[From the U.S. Government Publishing Office, www.gpo.gov]




          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. REED (for himself and Mr. Grassley):
  S. 803. A bill to amend the Internal Revenue Code of 1986 to deny tax 
deductions for corporate regulatory violations; to the Committee on 
Finance.
  Mr. REED. Mr. President, today I am reintroducing, along with Senator 
Grassley, the Government Settlement Transparency and Reform Act. This 
bill closes a loophole in the Tax Code that allows corporations to 
claim tax writeoffs for payments made at the direction of the 
government to settle investigations into illegal and abusive corporate 
behavior.
  Corporations accused of illegal activity routinely settle out of 
court with government agencies because it allows all parties to avoid 
the time, expense, and uncertainty of going to trial. While there is 
nothing wrong with settlements that correct wrongful corporate 
practices and compensate for the resulting harm caused by a 
corporation, the Tax Code often permits offending companies to claim a 
business tax deduction for any portion of a settlement that is not paid 
directly to the government as a penalty or fine for a violation of the 
law. The Tax Code on this point is vague, and big businesses exploit 
this by characterizing settlement penalties as tax-deductible business 
expenses.
  Illegal corporate behavior is not an ordinary business activity, and 
it shouldn't be subsidized by taxpayers. Yet, according to a 2015 study 
by U.S. Public Interest Research Group, PIRG, corporate settlements 
over a single 3-year period totaled nearly $80 billion, and 
corporations could claim business deductions for at least $48 billion 
of that amount. Moreover, there is no consistent, transparent way to 
track how these settlements can and will be treated by businesses for 
tax purposes.
  The Reed-Grassley bill addresses these problems by amending the Tax 
Code to require the government and the settling party to reach clear 
agreements on how settlement payments should be treated for tax 
purposes. It also clarifies which settlement payments are punitive and 
therefore nondeductible. It increases transparency by requiring the 
government to file a return at the time of settlement that accurately 
states the tax treatment of amounts to be paid by offending businesses. 
Last Congress, it was estimated that this legislation would raise $218 
million in revenue over a ten-year budget window.
  When a major corporate scandal breaks national news, Rhode Islanders 
and all Americans deserve to know that Federal regulators are 
protecting their interests by handing down punishments that deter 
future illegal and abusive business practices. That deterrent effect is 
undermined if corporations can claim a deduction for any penalty and 
build the cost of breaking the law into their business models.
  I want to thank Senator Grassley for working with me again on this 
legislation and for being a champion for reform in this area. I urge 
our colleagues to join us by cosponsoring this legislation and seeking 
its passage.

                          ____________________