The recent agreement between the BofA and the Department of Justice in which the bank will pay over $16 billion to settle mortgage issues will cost American taxpayers between $4 and $5.8 billion of the cost. BofA will be allowed to write off a significant part of the penalty, an issue covered in this Legal Broadcast Network report. Phineas Baxandall of the Public Interest Research Group discusses the tax deduction question in this report.
Baxandall reports that this kind of tax deduction is fairly common in DoJ and SEC settlements. One assumption that might be made about the tax deduction is that it will make the settlement large enough to provide financial aid to people who were hurt by the mortgage crisis. Baxandall suggests that this makes better political and public relations sense than it does financial sense.
As to what can be done to prevent future conduct like this, Baxandall opines that the Obama administration could simply make it a policy that settlements like this will not be allowed to be deducted from income taxes. In addition, there is legislation pending in Congress, supported by both parties, that would greatly limit such deductions.
Baxandall says that this is not really a liberal or conservative issue, noting again that members of both political parties support corrective legislation and make these settlements much more transparent. The GAO supports this approach. And such an approach would make it easier for the public to accurately gauge the size of a settlement if its tax status were disclosed.
Phineas Baxandall is a Senior Policy Analyst at U.S. PIRG and directs programs on tax and budget issues as well as transportation. Mr. Baxandall is a leading expert in his field and has appeared on numerous talk shows and conducted studio interviews and debates for outlets such as CNN, MSNBC, Fox and PBS. His op-eds have appeared in dozens of newspapers across the country and he has been quoted in numerous publications such as the New York Times, Washington Post and the Economist. He often presents at conferences and has given invited testimony and public comment to state legislatures, Congress, and the U.S. Department of Transportation. His blogs appear on the National Journal Transportation Expert blog, Huffington Post and StreetsBlog. The Legal Broadcast Network is a featured network of the Sequence Media Group.