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Research
May 15, 2021

Tax deduction for settling a sexual harassment suit? Under Biden’s and Warren’s tax proposals: Yes

Summary

Corporations are able to deduct some strange things on their tax returns. But new tax proposals from President Joe Biden and Sen. Elizabeth Warren introduce a few doozies.

For example, if a company were to settle a sexual harassment lawsuit subject to a nondisclosure agreement, that would be tax-deductible. If a company were to illegally bribe foreign officials, that would be fully deductible, as would be the penalty from the Justice Department once it was caught. And if a company were found guilty by the Environmental Protection Agency (EPA) of illegally dumping nuclear waste near an elementary school, that, too, would be tax-deductible under the Biden and Warren tax proposals. Yet none of these deductions are allowed under our current tax system.

Sound crazy? We think it does. But because Biden and Warren want to place a tax on financial accounting income (the income that companies report to investors), everything that is allowed as an expense for financial accounting purposes would become a proper deduction under the new proposed taxes.And that includes a lot of things.


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