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Settlements Subject to Non-Disclosure Agreements Are Not Deductible

01/18/18

Author: Andaika Jean-Noel/Wednesday, January 17, 2018/Categories: Bulletin News, Compliance Corner

The tax bill signed into law on December 22, 2017, has important implications for the settlement of sexual harassment claims. The new law includes a provision aimed at stemming the use of nondisclosure agreements in settlement of sexual harassment and sexual abuse claims. Any settlement payment, including attorney’s fees (apparently made to either the employer’s or the claimant’s attorney), related to sexual harassment or sexual abuse cannot be deducted as a business expense if the settlement payment is subject to a nondisclosure agreement.

Because this provision became effective upon enactment, it applies to payments made after December 22, 2017, if such payments are subject to a nondisclosure agreement. Existing settlement agreements with nondisclosure provisions that contemplate payments extending past December 22 could also be affected. The Act does not provide a transition rule exempting pre-existing agreements, and it does not provide guidance for determining whether or not a payment is “related to” sexual harassment or sexual abuse.

Employers considering whether or not to settle sexual harassment cases should take this new provision into account and consult with counsel as they determine the value of a case and how to structure a settlement.

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Tags: Compliance CornerCompliance update01/18/18

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