Tax Law

Tax bill aims to reduce confidential sex harassment settlements

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U.S. Sen. Bob Menendez, D-N.J., proposed the tax change. Lev Radin / Shutterstock.

A provision in the consensus tax bill seeks to reduce the use of confidential sex harassment settlements.

The provision bars a business expense deduction for any settlement, payout or attorney fees related to sexual harassment or sexual abuse when a nondisclosure agreement prevents disclosure of the payments, the New York Times reports. USA Today also has a story.

U.S. Sen. Robert Menendez, D-N.J., proposed the tax change. He was charged in a political corruption case that ended in a mistrial last month.

Gordon Klein, a lawyer and certified public accountant, told the New York Times that the impact of the change is likely to be symbolic. Companies cherish nondisclosure agreements because they help protect corporate reputation and protect the companies from additional suits, he said.

Klein also said the language of the provision lacked specifics. It’s unclear, he said, how the deduction ban applies when only one part of the allegations concerns sexual abuse or harassment, whether the allegation has to be proven, and whether the deduction ban applies to all the attorney fees, or only the fees for time spent drafting the settlement.

Meanwhile, U.S. Rep. Carolyn Maloney, D-N.Y. is seeking to expand on Menendez’s idea with a proposal that would bar companies from deducting the costs of buyouts for employees accused of sexual misconduct, the Hill reports.

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