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As a result of a U.S. District Judge finding British Petroleum (BP) grossly negligent in its role in the Deepwater Horizon disaster, BP will likely pay up to $18 billion for violations of the Clean Water Act. But if the Environmental Protection Agency fails to specifically forbid it, BP could take a tax windfall of up to $6.3 billion from a settlement deal, effectively shifting over a third of the cost back onto taxpayers.
“While protecting the water, the EPA should also protect taxpayers,” said Michelle Surka, program associate with the U.S. Public Interest Research Group. “The agency should ensure that a settlement with BP will deny any write-offs for its gross negligence.”
BP has already written off the cost of its cleanup effort after the spill, earning a tax windfall of $10 billion. Federal agencies made no effort to prevent this giveback through the tax system. By contrast, the Department of Justice reached a settlement with BP for its role in the deaths of 11 workers who were onboard the oil rig when it exploded. That $4 billion settlement with the Justice Department specified that it was not tax-deductible.
In August 2014, the EPA settled with the Exxon Mobil Pipeline Company over Clean Water Act violations stemming from a 2012 oil spill in Louisiana. In that settlement agreement, the EPA included a clause stating that ExxonMobil could not “deduct or capitalize the civil penalty...in calculating its federal income tax.” But many other large federal settlements in recent years have allowed corporations to write them off as normal business expenses. Last month’s Bank of America and Goldman Sachs settlements, for instance, failed to prohibit deductibility.
“BP will write off any settlement, unless the EPA forbids it,” said Surka. “If the EPA seeks to establish that gross negligence is never business as usual, settlement payments must not be treated as ordinary business costs for tax purposes.”
You can read Maryland PIRG’s report on tax write-offs in settlements here: “Subsidizing Bad Behavior: How Corporate Legal Settlements for Harming the Public Become Lucrative Tax Write-Offs.”
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