Tweet
On Tuesday, BP announced that they would be taking a $10 billion deduction on their US taxes because of losses stemming from the blown out oil well and expenses associated with the subsequent clean-up and compensation payments to Gulf businesses. Florida Senator Bill Nelson responded on Wednesday, writing a letter to the Senate Finance Committee, demanding an investigation into BP’s planned write-off.
Marketwatch quoted Tony Hayward on the decision to take the write-off: "We have followed the IRS regulations as they’re currently written." Their story continues:
White House Press Secretary Robert Gibbs said the following in a briefing with reporters: "I don’t think anybody would prefer that [BP] do that." Gibbs, however, did not say whether Obama would discuss the issue with BP.
But the Marketwatch story veers to offer an entirely unexpected counterexample:
One notable example of a company that decided to forgo a deduction is Goldman Sachs Group Inc., which agreed last month not to write off $535 million in penalties as part of its settlement with the Securities and Exchange Commission. The SEC had sued Goldman Sachs, alleging that it hid critical information from investors in its mortgage securities.
Of course, this penalty assessed to Goldman Sachs amounted to only the amount of profit they accrue in about two weeks, but when Goldman Sachs is held up as the company displaying "responsible behavior" against which BP is to be compared, it’s hard to imagine how BP’s image can sink any lower in the business press.
The Hill provides us with details about Senator Bill Nelson’s letter to the Senate Finance Committee in response to BP’s planned tax deduction:
“I was appalled upon learning that BP intends to shift nearly $10 billion of the costs related to the Gulf oil spill to the backs of American taxpayers, including the very taxpayers whose lives have been devastated by the spill. Simply put, that would be unacceptable,” Nelson said in a letter Wednesday to Committee Chairman Max Baucus (D-Mont.) and Sen. Chuck Grassley (R-Iowa), the panel’s top Republican.
/snip/
The letter says the probe should explore several questions, such as “How would BP be able to generate $10 billion in tax savings, when $12.2 billion of BP’s $32.2 billion charge on its financial results appears to be for nondeductible statutory penalties and fines?”
Nelson also said the committee should review whether BP will be able to claim deductions for compensatory damages paid to the federal government and state governments, among other areas.
It’s reassuring to see Senator Nelson not accepting at face value BP’s claim that they can deduct these fines and expenses. I hope that his efforts result in an IRS ruling that the deduction will not be allowed, or, better still, that BP will decide that foregoing the deduction would be a responsible act. But then again, if BP were in the habit of acting responsibly, the blow-out would never have occurred.
Apart from the Goldman Sachs and BP cases, however, it is time for Congress and the IRS to come together to make sure that tax deductions are never an option for a company’s losses or fines stemming from illegal acts. Such deductions are merely more of the moral hazard that results when companies are allowed to reap payoffs from irresponsible gambles but socialize the losses when these gambles end in disaster.
13 Comments
And yet, GOP members of congress would prefer to lecture the voting public about “our” tendency to moral hazard. Good grief!
Interesting that Nelson, of all people, is making an issue out of this. Given his record, it shows that BP has really become a political punching bag.
Prediction: Assuming the investigation is forthcoming, and given the corporate bias of our tax laws/subsidies (especially WRT the extractive industries), BP will be proven substantially correct. I’d love to predict that this result will create a demand for change in said laws/subsidies, but I think that would be beyond the pale.
One more and I’ll shut up.
Jim, you just aren’t getting with the program!
Advantage to consumers/working people = moral hazard
Advantage to big corporations/the rich = just compensation, needed incentive
/s
Yeah, I’m just a rabble-rouser when it comes to that program. Don’t think I can ever get on board…
There are two big points that I think you’re missing in your comparison of BP to Goldman Sachs.
First of all, and I know I’m right on this one, Goldman gave up its deduction because the SEC required it as part of their settlement; see:
http://taxprof.typepad.com/taxprof_blog/2010/07/goldman-sachs.html
At this point, Goldman would be in breach of a legal contract if they took the deduction.
Second, Goldman agreed not to deduct a penalty that it was charged as part of a settlement for alleged illegal action. I am not sure, but I believe that the 10B BP lost isn’t related to penalties or fines, but is just plain old operational loss tied to the clean up effort and claims paid out to third parties. I understand the desire to crucify BP, but income tax only applies to income, I don’t see why anyone would be surprised that a company would deduct its operating expenses when computing its NET profit.
EDIT: Yikes, I obviously didn’t read the end of post. So it looks like most of the charge is for civil fines and penalties. That obviously is analogous to the Goldman penalty, although BP isn’t a party to any settlement or other agreement forcing it to forego otherwise allowable deductions, like Goldman.
Well, 12.2 of the 32.2 deduction is related to fines, so roughtly 3 billion of the tax credit is analogous to Goldman Sachs.
I hate B.P.
BP needs those tax breaks to pay for the prison-slave labor they are using to do the cleanup.
I had a feeling when Obama said BP would foot the bill for the disaster that he meant with our help.
How the hell is anyone surprised BP is planning to do this?
We knew months ago their booked “losses” were going to be in the billions. Anyone who has even a rudimentary understanding of U.S. corporate tax codes would have known this is a loss which can be written off against profits, present or future.
That we have elected officials who apparently did not expect this or did not know it was inevitable is both disturbing and appalling.
May I, along with MaryDaze @2, point out and highlight that Sen Bill Nelson of Florida is foremost and most vocal among those disturbing and appalling elected officials? Because I can’t bear that right wing piece of garbage getting credit for anything but cynicism, hypocricy and stupidity.
Of course, Exxon Mobil, I read recently, paid no US income tax in 2009.
ABC report. GE paid none either in 2009.
Ain’t life grand if your a corporate person?
Somebody pointed out on an earlier thread that, if Charlie Crist is elected US Senator as an independent this fall, he will be the more liberal and Nelson the more conservative, of Florida’s US Senators.
I wrote a letter to Nelson noting that he and Alan Grayson are both in the pocket of AIPAC, so there’s no difference between them on policy toward Israel. I went on to ask why then would anybody support him over Grayson in a Dem Senate primary in 2012?