Washington, D.C. – Today, U.S. Senators Mazie K. Hirono, Bill Nelson (D-FL), Elizabeth Warren (D-MA), Martin Heinrich (D-NM) and Sheldon Whitehouse (D-RI) called on U.S. Attorney General Eric Holder to prevent American taxpayers from having to foot the bill as a result of settlement negotiations between the U.S. Department of Justice and JPMorgan Chase over the bank’s mortgage lending practices in the lead up to the financial crisis. While the details of the settlement are not final, numerous media reports have indicated that absent clear guidelines from the Justice Department, JPMorgan could potentially write off nearly a third of the settlement’s costs.
“Too many American families and communities are still fighting to recover from the worst financial crisis since the Great Depression,” Hirono said. “It’s deplorable that banks like JPMorgan may be able to deduct more than a quarter of penalties on what is meant to be relief to those affected, and I urge Attorney General Holder to stand firm and fight for taxpayers and middle class families.”
Under a tentative settlement between JPMorgan and the Justice Department, the bank would pay $13 billion over charges that it engaged in questionable practices leading up to the 2008 financial crisis. However, reports suggest that JPMorgan may be able to claim as much as $4 billion, or roughly 30 percent, of the settlement as a tax deduction—meaning taxpayers would be subsidizing the bank’s penalties at a time when federal priorities like education, clean energy, infrastructure and other job creating investments are facing budget cuts. In addition, Hirono and her colleagues urged Holder to expand monitoring to ensure that affected homeowners see the full benefit of the funds that are reportedly being directed to consumer relief.
The letter, signed by Hirono and her colleagues reads in part, “Allowing major corporations to write off penalties for breaking the law and harming the public is impossible to justify to taxpayers. Fines and penalties are intended not just to compensate the public, but also to serve as deterrents to others who might break the law in the future. We urge the Department of Justice to ensure the final settlement is clear about the tax treatment of the entire settlement amount and explicitly prohibits the tax deductibility of such payments.”
The full text of the letter reads below:
October 29, 2013
Dear Attorney General Holder:
We write today regarding your ongoing settlement negotiations with J.P. Morgan Chase Bank. We applaud your efforts to hold accountable those financial institutions whose actions contributed to the financial crisis.
However, we are troubled by the numerous media reports that indicate the settlement being negotiated may allow J.P. Morgan Chase to claim a tax deduction for as much as $4 billion, or roughly 30 percent of the settlement amount. That would, in effect, shift part of the settlement cost from J.P. Morgan Chase onto Main Street taxpayers. We urge you to prevent this from happening by ensuring the final settlement agreement explicitly prohibits J.P. Morgan Chase from claiming a tax deduction for any part of the settlement amount.
Such a prohibition would be consistent with both the intent of Section 162(f) of the tax code and with other recent settlements with Wall Street banks. The intent of Section 162(f) is to prevent businesses from enjoying tax benefits for fines and penalties paid to the government. The provision states, “No deduction shall be allowed under subsection (a) [which defines deductible trade and business expenses] for any fine or similar penalty paid to a government for the violation of any law.”
The U.S. Public Interest Research Group (PIRG) released a report in January 2013 examining past settlements. The report outlines cases in which federal agencies failed to clarify the tax treatment of the settlement payments. This allowed the settling parties to deduct large portions of the settlements they paid. On the other hand, the report also points out that other settlement agreements have included explicit prohibitions on the tax deductibility of settlement amounts. For example, the Securities and Exchange Commission’s $550 million settlement with Goldman Sachs prohibited the bank from claiming tax deductions for any of those settlement payments.
Allowing major corporations to write off penalties for breaking the law and harming the public is impossible to justify to taxpayers. Fines and penalties are intended not just to compensate the public, but also to serve as deterrents to others who might break the law in the future. We urge the Department of Justice to ensure the final settlement is clear about the tax treatment of the entire settlement amount and explicitly prohibits the tax deductibility of such payments.
In addition to ensuring taxpayers are not subsidizing a major corporation’s fines or penalties for harming the public, we urge you to do all you can to explicitly require that the final agreement provides meaningful, enforceable, and verifiable relief to homeowners and consumers. The National Mortgage Settlement (NMS) provides guidance as to how this can be accomplished. The Office of Mortgage Settlement Oversight has provided the public with progress reports on the implementation of the NMS. These reports have shown the progress banks have made toward meeting their consumer relief obligations under the settlement, and they provide insight into how to better structure future settlements to maximize the benefits to consumers and the public. We urge you to build on the findings of these reports in order require that homeowners receive the full amount of relief set in the agreement.
This is an important moment. Too many Americans have lost faith that their government is looking out for them and their families. They are skeptical that the rules they follow every day are the same rules that apply to the wealthy and the powerful. You have an opportunity to help restore their faith and to clearly demonstrate that the rules matter, the law applies to everyone, and the government of the United States is standing up for the interests of the people of the United States.
We urge you to do all you can to ensure that taxpayers are not subsidizing corporate wrongdoing, while doing everything you can to ensure that consumers receive meaningful, enforceable, and verifiable relief in the process.
We stand ready to assist you in any way we can to meet these goals.
MAZIE K. HIRONO BILL NELSON
U.S. Senator U.S. Senator
ELIZABETH WARREN MARTIN HEINRICH
U.S. Senator U.S. Senator