Author: Deborah Grace

Confidential Settlements of Sexual Harassment Claims Are No Longer Deductible by a Company Under the Tax Act

Companies generally are allowed to deduct all ordinary and necessary expenses paid during the year to carry on a trade or business, including most expenses related to settlement of a lawsuit or claim relating to the business. But expenses such as illegal bribes and fines paid to the government for violation of any law are not deductible in determining a company’s taxable income. Non-deductibility of Payments under the Tax Act The recently enacted H.R. 1 (formerly, the “Tax Cuts and Jobs Act” (the “Tax Act”))  (P.L. 115-97) has expanded the list of nondeductible payments to include any settlement or payment related to sexual harassment or sexual abuse if the settlement or payment is subject to a nondisclosure agreement.   In addition, the law provides that the attorney’s fees relating to the settlement are nondeductible if the settlement includes a nondisclosure agreement.    While the term “nondisclosure agreement” is not defined, it would most likely include any provision that requires the claimant to keep the settlement confidential or secret.  This change to Tax Code Section 162 is effective for amounts paid or incurred after December 22, 2017. Planning for Nondisclosure Provisions in Settlements Since the investigation and settlement of a sexual harassment claim could include actions in more than one taxable year of the business, company executives may want to make a preliminary decision at the beginning of the investigation about the...

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Retirement Plan Fiduciaries Can Save Money and Time by Paying Attention to the Details

Individuals responsible for the administration of a 401(k) retirement plan know that details, such as a participant’s date of hire or the number of hours worked, are important when determining an employee’s plan entry date. A lawsuit recently filed by the Department of Labor is a reminder that plan fiduciaries should also be paying attention to the details when an employee terminates employment.  The plan at issue included a provision requiring that the account of a terminated employee be paid out if the account’s value was $5,000 or less.  For a number of years, the plan fiduciaries did not instruct the plan administrator to make the required distributions.  The plan’s third-party administrator charged a quarterly recordkeeping fee of $7 per participant account.  The plan sponsor chose to allocate that fee based on each account’s pro rata value compared to the plan’s total value—meaning that participants with higher balances paid higher fees.  The Department of Labor alleges that the plan fiduciaries breached their duty to the participants by causing the active participants to pay a larger fee than they would have paid if the plan had been administered in accordance with its terms and the smaller accounts were cashed out. What should a plan administrator do? If your plan includes required cashout language for terminated participants’ accounts make sure that your recordkeeper is making such distributions at least annually.  Some...

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The HR Blog is published by Dickinson Wright PLLC to inform the public of important developments within the firm and practice areas. The content is informational only and does not constitute legal or professional advice. We encourage you to consult a Dickinson Wright attorney if you have specific questions or concerns relating to any of the topics covered in this blog.