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Sexual Harassment - Tax Reform Changes

Under Tax Reform, no Federal deduction is allowed for (a) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement (NDA)and (b) any attorney’s fees related to such a settlement or payment.

If NDA is not present, these settlements and attorney’s fees are deductible. However, most of these settlements typically have a NDA.

My guess is that this new law change will not result in a substantial increase in Treasury revenue as (a) many companies will be unaware of this rule and thus incorrectly deduct these settlement payments/attorney’s fees and (b) even if companies are aware of this new rule, those in their accounting and finance teams responsible for their taxes may not be aware of what amounts their companies have paid for sexual harassment settlements and related attorney’s fees.

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Richard Pon CPA, CFP