Tax Reform Eliminates Tax Deduction for Confidential Sexual Harassment Settlements
On December 22, 2017, President Trump signed into law the Tax Cut and Jobs Act (the “Act”). The Act includes an amendment to the Internal Revenue Code providing that no deduction as a trade or business expense shall be allowed for “any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement,” or “attorney’s fees related to such a settlement or payment.” 26 U.S.C. § 162(q). The purpose of the law is to discourage confidential settlements of sexual harassment or abuse claims. Businesses now must choose between keeping such covered settlements confidential and preserving the right to take a tax deduction for the amount of the settlement and related attorneys’ fees.