the finance industry / wall street

Yes.

From a USPirg email I just got:

On Saturday, the news broke that JPMorgan is on the verge of reaching a settlement with the Department of Justice for the biggest bank penalty in U.S. history: $13 billion for mortgage lending abuses allegedly committed during the housing crisis.

But as this story makes waves in the media, one thing has gone unnoticed: Taxpayers could end up underwriting more than $4.5 billion of the settlement. That's because JPMorgan is likely to claim the settlement for wrongdoing as a deduction from their taxes.

We can’t let that happen. The DOJ has the power
to deny the deduction, but they need to know that we’re watching.

http://dealbook.nytimes.com/2013/10/20/u-s-deal-with-jpmorgan-spurred-by-a-phone-call/

13 billion settlement in the works + potential criminal charges, lol, holder taking no prisoners at JPM

xp!

that's because JPMorgan is likely to claim the settlement for wrongdoing as a deduction from their taxes.

This is kind of a misleading way to put it, at least as I understand it. The settlement cannot be a "deduction" from their taxes, only a net loss would be. There's no special "tax deduction" for corporations for settlements. In other words, if they would have made $11 billion profit in a year, but they have to pay out $13 billion in the same year, they'd have a $2 billion net loss for tax purposes. BTW, their profits last year were over $20 billion, so I don't see that happening.

Sorry, I explained that totally wrong. If the settlement reduces their net income for the year, then yes, they will pay less tax.

USPirg asserts that the Justice Department last year made one of BP’s Gulf oil spill settlements non-deductible, saving taxpayers $1.7 billion.

i think that's a little misleading because the general public isn't asked to pay more on their taxes to make up for the tax revenue lost, the US just gets less tax revenue that year.

didn't know the Justice Department had that sort of authority over tax questions

yes, that's correct, although some of this is an optical thing -- settlements are negotiated, so it's likely that non-tax-deductible just leads to a smaller settlement (same net cost to the Company).

xp

i think that's a little misleading because the general public isn't asked to pay more on their taxes to make up for the tax revenue lost, the US just gets less tax revenue that year.

― 乒乓, Monday, October 21, 2013 3:10 PM Bookmark Flag Post Permalink

this is what I was originally trying to say but confused myself writing it

Like if JPM has a year where they make less money, they pay less taxes as a result, it's just how taxes work. We don't say "the public was forced to subsidize JPMorgan's disappointing revenues from mortgage banking" or whatever.

I think I know what you are saying Hurting but clarify: so the Justice Department can negotiate certain fines or settlements as non-deductible/deductible?

(That seems like a Treasury Department jurisdiction)

i would think it's something they negotiated for, SCOTUS has ultimate authority over tax questions, i think.

Justice Department attorneys work with attorneys in other parts of the government, and sometimes get the final say on offering an interpretation of tax law (that must be upheld by the Supreme Court)

My understanding is that the company would just agree not to deduct that settlement from their income for the year. I don't see why this would require treasury or SCOTUS or any other approval since no one is required to deduct anything from their income.

source?

SCOTUS doesn't have to do anything it doesn't want to xp

Skipping 666 messages at this point... Click here if you want to load them all.

How apt.

xpost d'oh!

x-post

Although some civil settlement payments are deductible, their deterrence factor could be lessened if companies can deduct certain settlement payments from their income taxes. GAO was asked to (1) identify federal agencies that negotiated some of the largest dollar civil settlements, (2) determine whether selected federal agencies take tax consequences into account when negotiating settlements and officials' views on whether they should address payment deductibility in settlement agreements, (3) determine whether companies with some of the largest civil settlement payments deducted any of the payments on their federal income taxes, and (4) determine what information the Internal Revenue Service (IRS) collects on civil settlements reached by federal agencies.

http://www.gao.gov/products/GAO-05-747

ah yes so (4) is relevant.

But:

since no one is required to deduct anything from their income

...that's a very interesting question and one I would be very interested in knowing how often that kind of thing happened given the implications.

interesting, the money quote:

Some DOJ environmental settlements with civil penalties have language stating that penalties are not deductible. DOJ officials said since the law is generally clear that civil penalties paid to a government are not deductible, stating so in the agreement was merely restating the law and is not necessary. The majority of companies responding to GAO's survey on how they treated civil settlement payments for federal income tax purposes deducted civil settlement payments when their settlement agreements did not label the payments as penalties.

Here's another example of the same thing.

http://www.bloomberg.com/news/2010-07-16/goldman-waives-tax-deduction-on-sec-settlement.html

Don, this is kind of common sense really -- have you ever done your own taxes? There's no law that requires you to take any deductions at all. You could choose not to deduct your mortgage interest, your charitable contributions, or whatever. It's not illegal to pay MORE tax. Plus the language in the goldman thing kind of suggests this:

In yesterday’s settlement with the U.S. Securities and Exchange Commission, the firm agreed “it shall not claim, assert or apply for a tax deduction” for any penalty amounts. Goldman Sachs will pay a $535 million civil penalty, which normally would be deductible, and give up $15 million in profits, which the firm likely can still deduct.

Yes, it's common sense and I'm a bit dim for not considering that angle (and yes I claim all deductions) but corporate tax strategy on corporate entities that large is usually wide ranging (both in terms of scope and time); something like this would have a huge impact on planning (although I suppose it is mitigated by the amount of time it takes to settle.) I assume you see a bit of tax planning with your clients?

Never really thought about the tax consequences of a huge settlement before.

corp tax sometimes comes into play in some indirect way in my work but I never deal with it directly, definitely not something I have a huge working knowledge of

Same ol', same' ol

The House is scheduled to vote on two bills this week that would undercut new financial regulations and hand Wall Street a victory. The legislation has garnered broad bipartisan support in the House, even after lawmakers learned that Citigroup lobbyists helped write one of the bills, which would exempt a wide array of derivatives trading from new regulation.
...
The House proposals stand little chance of becoming law, having received a much chillier reception in the Senate and at the White House, which on Monday threatened to veto the bill on investment advice for retirees.

But simply voting on the bills generates benefits for both House lawmakers and Wall Street lobbyists, critics say. For lawmakers, it comes in the form of hundreds of thousands of dollars in campaign contributions. The banks, meanwhile, welcome the bills as a warning to regulatory agencies that they should tread carefully when drawing up new rules.

...Wall Street’s support from the House extends beyond favorable votes. When bank executives are called to testify before Congress, industry lobbyists distribute proposed questions to lawmakers and their staff, seeking to exert some control over the debate, according to emails written by staff members on the House Financial Services Committee that were reviewed by The Times...

...But it is possible that lawmakers will quietly tuck the provisions into a broader budget deal at the end of the year. And even if the Senate balks, the House bills can still send a powerful message to regulators drafting new rules under Dodd-Frank: slow down.

The bills, advocacy groups say, have a chilling effect on regulators, who have completed only about 40 percent of the rules required by the law.

http://dealbook.nytimes.com/2013/10/28/house-set-to-vote-on-2-bills-is-seen-as-an-ally-of-wall-st/?nl=todaysheadlines&emc=edit_th_20131029&_r=0

even after lawmakers learned that Citigroup lobbyists helped write one of the bills

Because Citibank would never, ever slant a piece of banking legislation to benefit themselves rather more than it benefits banks in general. It is part of their code of honor.

I love the fantasy of Congress ever writing their own legislation on any issue.

so the JP Morgan 5.1 billion settlement is tax-deductible

http://taxprof.typepad.com/taxprof_blog/2013/10/wsj--1.html

well, whattaya gonna do

Thanks a lot Obama Justice Department

You mean the five star Eric Holder?

Don't know your "five star" reference to him? Is that from the Drudge Report?

I also did not realize Holder was once a Reagan appointed judge.

http://www.theatlantic.com/politics/archive/2013/06/what-happened-to-eric-holder/276685/

I don't read Drudge. But if you think Holder's been awesome, yay.

as stated above, it's not exactly accurate to say that the settlement could "save JPMorgan nearly $1.5 billion in taxes." The settlement is still a loss, so it's not like they're really "saving" money.

I realize that's how a lot of people think about taxes though -- "My mortgage interest is tax deductible -- I'm saving money!"

most important part of that article is noting that it ultimately will "cost" taxpayers

Yeah, a bit silly imo.

x-post-- I don't like Holder, but not for the reasons you don't Don.

http://www.newyorker.com/reporting/2013/11/11/131111fa_fact_lemann?currentPage=all

That piece suggests that no matter how tough the head of the S.E.C. is, the Congress or the White House can undermine things

http://www.nationalreview.com/corner/362637/hillary-clintons-lucrative-goldman-sachs-speaking-gigs-alec-torres

Don't worry, there are several years to for people to forget this kind of pesky detail and declare her the lesser of two evils.

All the people in power, regardless of party, seem to think that the less ordinary people know about how political power operates and the less those folks participate in it, the better the system works.

http://mobile.nytimes.com/blogs/dealbook/2013/11/16/geithner-to-join-private-equity-firm/?_r=0

Warburg Pincus has also taken stakes in banks aided by taxpayer dollars through TARP. That includes Webster Financial, a New England lender in which the firm reaped a return of about 35 percent. Another was Sterling Financial, a Washington State institution in which the buyout firm invested $139 million; it was sold two months ago to another bank, Umpqua, for $2 billion.

Same ol', same ol'. Although Geithner had given interviews as recently as when he was leaving the Treasury job noting that he was unlikely to go this private route because he had always worked in the public sector.

http://neweconomicperspectives.org/2013/11/media-ignore-timothy-geithners-disastrous-leadership-ny-fed.html

Warburg Pincus has had Geithner’s back for at least four years. The revolving door is powered by reciprocity, and Geithner had Wall Street’s back for a decade.

Yep I know, nothing new here.

Thirteen billion dollars is a lot of money — the biggest fine for one company in U.S. history. But it only represents about five months of JPMorgan’s operating income in 2013, and it’s barely more than a third of what JPMorgan is spending on lawyers to defend itself.

wut how is that possible

yeah wait what, $39 billion in legal fees?!?!

which article is that from?

Mounting legal costs from government proceedings pushed JPMorgan to a rare loss in this year's third quarter, the first under CEO Jamie Dimon's leadership. The bank reported Oct. 11 that it set aside $9.2 billion in the July-September quarter to cover the string of legal cases against the bank. JPMorgan said it has placed $23 billion in reserve to cover potential legal costs.

http://www.pantagraph.com/business/feds-jpmorgan-could-settle-for-billion/article_aa903966-511c-11e3-b3b6-0019bb2963f4.html

An expansive definition of legal costs

http://www.thenewamerican.com/usnews/crime/item/16777-jp-morgan-buying-its-way-out-of-legal-troubles