JP Morgan Chase To Settle With U.S. Government -- But Is The Settlement A Tax Break?

Over the last two weeks, we have seen the Too Big To Fail banks agree to some rather large settlements for a wide variety of lawsuits. Currently, the JP Morgan Chase proposed $13 billion settlement is the largest. Chase was sued by New York Attorney General Eric Schneiderman and by Freddie and Fannie based on allegations of fraud related to loans sold by Chase (or banks it acquired) that were not as advertised.

You may recall that this behavior was part of what caused the economy to collapse.

The usual apologists made loud noises about how this was unfair to JP Morgan Chase. However, according to Forbes, Chase may end up being able to write at least $4 billion of the settlment off on its taxes. This is because remedial fines are tax deductible. Punitive fines (those designed to punish) are not. However, because remedial fines serve to remedy past wrongs, they can be deducted. According to the Forbes article, if Chase is able to write off the settlement, then taxpayers will shoulder 35% of the settlement's burden.

Working regulatory penalties into tax deductions is nothing new. However, in a case like this one, not a single penny should be tax deductible. Behavior that led to collapse of the housing market and the economy as a whole should not be tax deductible.

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