The Bank of America recently settled its liability for toxic mortgages in the amount of $17 billion. It appears that $12 billion will be tax deductible. Tax attorney Rob Wood explains the settlement in his Forbes article “BofA Grabs $12 Billion Tax Write-Off From $17 Billion Mortgage Settlement.” Wood discusses the tax situation in this report.
Wood says he is not surprised by the deductibility of a large part of the settlement. BofA did a good job in negotiating the settlement of its liability, and part of the deal, apparently, was that a large part of this huge settlement would be deductible. It seems likely, Wood opines, that the company agreed to pay the sum in exchange for getting a tax deduction.
Tax considerations probably get discussed any time a settlement like this is being considered. Businesses always need to be conscious of how expenses will be treated for taxation purposes. Wood says that usually, settlements paid to the government are deductible, even though many people believe otherwise.
If the settlement involved criminal charges, it might have changed the circumstances, but there might still have been some deductible payments, such as restitution payments, all of which are deductible. Michael Milken is the classic case. Wood says that there are proposals in Congress to make all these negotiations transparent, but no proposal has yet been passed.
For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network. The Legal Broadcast Network is a featured network of the Sequence Media Group.