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By Casey Wooten
July 30 — The Senate Homeland Security and Government Affairs Committee approved on a voice vote legislation that would require federal agencies to publish the details of settlements, so the public could determine if the payments are tax deductible.
The Truth in Settlements Act (S. 1898), introduced by Sen. Elizabeth Warren (D-Mass.) and approved by the committee July 30, would require agencies to report publicly the nature of a settlement payment, which can affect its tax treatment and thus the net cost imposed on the defendant.
In most instances, when federal agencies bring a case against a corporation, the agencies choose to settle with the defendant rather than go to trial. That, the bipartisan bill's proponents say, can leave the public unaware of how much the offender actually paid, given that payments classified as restitution or compensation are tax deductible, while penalties and fines aren't.
“Most often you hear of these large fines, but in fact what it does is they use it to write off their taxes. So the net effect for the business is very, very small compared to what it published,” said Sen. Tom Coburn (R-Okla.), the committee's ranking member and bill co-sponsor.
Recent settlements between the government and large banks related to the mortgage crisis have sparked opposition because portions of the agreed-upon payments may be tax deductible.
Warren said from the Senate floor Jan. 9—the day after she introduced the bill—that settlements that seem tough can often “end up looking like sweetheart deals” when all the details are made public.
Covered settlements would include agreements that are entered into by an executive agency, are related to a violation of criminal or civil law and require a payment of $1 million or more by non-federal entities.
The head of each agency would also have to make available to the public a list of covered settlement agreements, including names of the parties, a description of the claims settled and the amount each party is obligated to pay. The information would have to remain publicly available for five years.
As part of the bill, if the settlements are considered confidential, agencies would have to explain why.
The bill also would require that corporations disclose in Securities and Exchange Commission filings any deductions received from paying fines or settlements.
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Text of S. 1898 can be found at http://www.warren.senate.gov/files/ documents/Truth%20In% 20Settlements%20Bill.pdf.
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