Companies will have to pay more in taxes if they use nondisclosure agreements, but experts say it isn’t likely to deter businesses from seeking confidentiality.
The sexual misconduct allegations against the former Fox News host Bill O’Reilly and the Hollywood producer Harvey Weinstein — and the confidential settlements arising from those accusations — have prompted a provision in the final tax bill that aims to stem the use of nondisclosure agreements.
Senator Robert Menendez, a Democrat from New Jersey, proposed the amendment last month. It says any settlement, payout or lawyer’s fees related to sexual harassment or sexual abuse could not be deducted as a business expense if such payments were subject to a nondisclosure agreement.
“I think most Americans would be outraged to know that they are subsidizing sexual predators in the tax code,” he said in an emailed statement.
But the proposed changes may not deter some companies and businesses from seeking confidentiality.
“This is a nudge, not a hammer,” Daniel Hemel, an assistant professor at the University of Chicago Law School and an expert in tax policy, said in a phone interview on Saturday.
Publicly known sexual harassment settlements involving Mr. O’Reilly — who is said to have used nondisclosure agreements — have totaled about $45 million, including a $32 million payout that he paid personally.
Mr. Weinstein, whose abuse of women was exposed by The New York Times in October, also has used confidentiality agreements. The Times reported that Mr. Weinstein has said he struck at least eight to 12 settlements with women claiming mistreatment.
Under the tax bill spearheaded by Republicans, a hypothetical company that paid a $10 million sexual abuse settlement would not be able to take a deduction on that amount if the payout had a nondisclosure agreement attached to it.
In the absence of a confidentiality agreement, however, the new corporate tax rate would allow the company to deduct $2.1 million, making the out-of-pocket cost $7.9 million.
For a business that generates billions in revenue, like the parent company of Fox News, a nondisclosure agreement can have far more value than tax savings.
“The new rules are very well-intentioned, but the impact is likely to only be symbolic,” Gordon Klein, a lawyer, certified public accountant and faculty member at the University of California, Los Angeles’s Anderson School of Management, said in a phone interview on Saturday. “The reason for that is companies cherish nondisclosure agreements because they significantly help protect the company’s reputation and protect them from follow-on lawsuits or additional lawsuits.”
The nonspecific language of the amendment also complicated matters, Mr. Klein said.
The bill refers to settlements or payments “related” to sexual harassment or sexual abuse, he said, but what if only one portion of the allegations is about sexual harassment? And does it matter if the sexual harassment was merely an allegation, or does there need to be evidence of sexual harassment? Are the lawyer’s fees limited to the time spent drafting the settlement, or to all of the fees associated with the settlement?
Representative Ken Buck, Republican of Colorado, proposed a similar amendment for the House’s tax reform bill but it did not include a stipulation about confidentiality agreements.
In the end, the language in the Senate bill offered by Mr. Menendez made the final cut when lawmakers blended the two bills together. Democrats have heavily criticized the proposed tax bill and complained they were shut out of the legislative process .
“I think the reason, in all honestly, why there was no pushback was because it was a revenue generator,” Tricia Enright, Mr. Menendez’s press secretary, said in a phone interview on Saturday. “They determined that it would be seen on the plus-side of the ledger.”
While the new tax plan would allow businesses to write off legal fees related to sexual harassment payouts — provided they’re not tied to nondisclosure agreements — it is a different situation for employees who make claims of sexual abuse or harassment.
In those cases, plaintiffs will no longer be able to write off their legal fees. A plaintiff could ordinarily claim such an expense as an itemized deduction, but the Republican plan has eliminated that option, Mr. Hemel said, adding that it creates “a one-sidedness.”
