• 4 minutes Drone attacks cause fire at two Saudi Aramco facilities, blaze now under control
  • 7 minutes China Faces Economic Collapse
  • 13 minutes Oil Production Growth In U.S. Grinds To A Halt
  • 15 minutes Iran in the world market
  • 18 minutes Ethanol, the Perfect Home Remedy for A Saudi Oil Fever
  • 2 hours USA Wants Iran War -- Shooty Shooty More
  • 3 hours Collateral Damage: Saudi Disruption Leaves Canada's Biggest Refinery Vulnerable
  • 9 hours USA : Attack came from 'Iranian soil'. Pompeo to release 'evidence'.
  • 21 mins Experts review drone damage . Say Saudis need to do a lot of explaining.
  • 15 hours Never Bring A Rapier To A Gun Fight
  • 3 hours Yawn... Parliament Poised to Force Brexit Delay Until Jan. 31
  • 18 hours Bahrain - U.S.: Signed Deal To Buy Patriot Missiles
  • 20 hours One of the fire satellite pictures showed what look like the fire hit outside the main oil complex. Like it hit storage or pipeline facility. Not big deal.
  • 18 hours Trump Will Win In 2020 And Beyond..?
  • 20 hours How OPEC and OECD play their role in setting oil price in light of Iranian oil sanction ?? Does the world agree with Iran's oil sanctions ???
  • 18 hours Democrats and Gun Views
Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

More Info

Premium Content

Most Of BP’s $20.8 Billion Deepwater Horizon Fine Is Tax Deductible

The U.S. Justice Department touted its historic settlement with BP over charges related to the Deepwater Horizon disaster in 2010. BP will be forced to pay $20.8 billion, the largest settlement ever reached with a single entity. “BP is receiving the punishment it deserves,” U.S. Attorney General Loretta Lynch said in a statement.

But is it really?

BP will be able to write-off three-quarters of the total, taking a tax deduction on $15.3 billion of the total, as Robert W. Wood points out in Forbes. Only $5.5 billion out of the $20.8 billion total is not eligible for a tax deduction, as those charges stem from a Clean Water Act violation. Related: This Month Could Make Or Break The Oil Markets

Due to quirks in the tax code, the “historic” settlement is not as significant a penalty as the U.S. government is making it out to be. It is normal for companies to deduct the business costs. Even litigation costs are often tax deductible. Violations of law, however, are often in murky territory. Sometimes there needs to be explicit language in settlements that bars companies from writing off penalties paid to the government.

It appears that BP will be able to deduct quite a bit of its settlement with the U.S. government. In this way, it is essentially treated as any other cost of doing business. Similarly, the $32 billion that BP spent to clean up the Gulf area following the massive oil spill was also tax deductible, costing U.S. taxpayers $10 billion. Related: Has Oil Finally Bottomed?

Obviously, BP will do everything within its power to pay as little as possible. So, the fact that it will write off a significant portion of its settlement with the Justice Department is the fault of the U.S. tax code. Changes to the code would be needed to prevent companies from deducting penalties.

Also, some blame should be reserved for the Justice Department itself for trumpeting the settlement as a “historic” win. The Justice Department routinely boasts of large settlements with corporate offenders, with headline-grabbing fines. But the agency doesn’t necessarily discuss the fact that companies won’t actually be impacted as severely as the huge figures suggest. A 2014 report from U.S. PIRG highlights several settlements between the Justice Department and big banks in recent years that resulted in large settlements that ended up being tax deductible.

By Charles Kennedy of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage



Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play