Are Sexual Harassment Plaintiffs’ Attorneys’ Fees Inadvertently Disallowed by the Tax Cuts Bill?

By Leandra Lederman

The Tax Cuts and Job Act’s conference bill includes section 13307, titled “DENIAL OF DEDUCTION FOR SETTLEMENTS SUBJECT TO NONDISCLOSURE AGREEMENTS PAID IN CONNECTION WITH SEXUAL HARASSMENT OR SEXUAL ABUSE.” Fellow Surly blogger Sam Brunson blogged about an earlier version of this provision, which obviously reflects the recent, widely publicized revelations of sexual harassment and sexual assault that began with the Jody Kantor & Megan Twohey exposé of Harvey Weinstein in early October and was followed by a floodgate of allegations spanning a wide range of industries. Unfortunately, this tax provision, as drafted, is less than clear and could potentially have perverse—perhaps unintended—effects.

The provision seems intended as a policy-based provision rather than much of a revenue-raiser; it was one of very few things in the conference bill scored as raising less than $50 million over the entire 2018-2027 budget window. And, in the press release accompanying the predecessor of this provision, the Settlement Tax Deductions are Over for Predators Act (the STOP Act), which was introduced by Rep. Ken Buck (R-Colo.), Rep. Buck stated, “‘When we allow companies to deduct sexual assault and sexual harassment related settlements, we’re asking the American taxpayer to subsidize hush money payments that cover-up sexual misconduct.’”

But what exactly does the provision disallow? The principal language in the conference bill (the material other than the effective date and relettering) is a new subsection added to Code section 162 that reads:

“PAYMENTS RELATED TO SEXUAL HARASSMENT AND SEXUAL ABUSE.—No deduction shall be allowed under this chapter for—

“(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or

“(2) attorney’s fees related to such a settlement or payment.” Continue reading “Are Sexual Harassment Plaintiffs’ Attorneys’ Fees Inadvertently Disallowed by the Tax Cuts Bill?”