Get out your pitchforks – BP will be able write off $15.3 billion of the $20.8 billion settlement from the deadly 2010 Deepwater Horizon oil spill in the Gulf of Mexico that ruined the beaches, wetlands, and estuaries in the area thanks to their negligence. The deduction is 74% of the penalty and clean-up money the government ordered them to pay.
The $5.5 billion difference not claimed by BP as a tax deduction is a Clean Water Act Penalty. Under IRS code, penalties are not tax deductible but are often left to interpretation, allowing creative accountants ways to write them off. But the Department of Justice was explicit with BP that the Clean Water Act Penalty was not deductible or BP would have probably written that amount off as well.
The announcement was made by the US Department of Justice from an out-of-court settlement with BP. The charges related to the Gulf oil spill will allow BP to write off $15.3 billion of the total payment as a tax deduction for the “cost of doing business” meaning BP can write off the natural resource damages payments, restoration, and reimbursement of government costs.
The $15.3 billion dollar tax deduction is different from a tax credit. The deduction will basically reduce taxable income and taxes they’ll have to pay for 2015. That’s about a $5 billion tax savings that pretty much eliminates the expense of ruining the Gulf with their negligence. And the write-off almost completely offsets the cost of the $5.5 billion non-deductible penalty portion.
The watchdog group US Public Interest Research Group (US PIRG) spoke out against the Department of Justice’s settlement with BP. In a statement: “BP was found to be grossly negligent in the Deepwater Horizon case, and yet the vast majority of what they are paying to make up for their gross negligence is legally considered just business as usual under the tax code unless the DOJ explicitly prohibits a write-off,” said Michelle Surka of US PIRG. “This not only sends the wrong message, but it also hurts taxpayers by forcing us to shoulder the burden of BP’s tax windfall in the form of higher taxes, cuts to public programs, and more national debt.”
The US Department of Justice has the authority to decide on what portions of a claim can be tax deductible, as it did with the criminal settlement with BP over its role in the deaths of 11 workers who died when the oil rig exploded. The Department of Justice specified that the $4 billion criminal settlement was not tax-deductible. But the Department allowed BP to write off another $32 billion in cleanup expenses.
The US PIRG and other groups call for an end to tax-deductible expenses due to negligence or criminal acts.
“Being explicit about denying deductions for the Clean Water Act penalty is certainly a step in the right direction, but it’s a small one considering that the remaining $15.3 billion is wide open for deductions,” said Ms. Surka. “The Department of Justice should go further and make sure that the entirety of the settlement is non-deductible, regardless of how the money is spent.”