Looking for a last-minute tax break? How about a billion-dollar FCA settlement?
It's that time of year. I'm not referring to the cookie-gorging, present-buying, pine-scented bonanza that is the holiday stretch between Thanksgiving and Christmas. I'm talking about the few short weeks you have to reduce your taxable income for 2015.
For some, that means stashing some extra cash into a 401K or making a charitable donation that is both generous and self-serving (hey, Mark Zuckerberg!)
For others, it's even easier. If you're a large healthcare corporation embroiled in fraud allegations, simply negotiating a multi-billion dollar settlement with the federal government could significantly reduce your tax burden.
Pretty cool, huh? It's a neat little trick that kills two birds with one stone: It gets you out of those messy fraud charges and doubles as a convenient write-off.
So quit sitting there chewing your nails over these widespread allegations about kickbacks or false claims or some other legal mumbo jumbo, and zip over to the Department of Justice (DOJ) for your own deduction. You'll see it right when you walk in. It's the one gift-wrapped and adorned with a pretty bow.
What's that? You're worried about what people will think? That's the best part. Oh sure, DOJ will pound its chest and wag its finger and put on a big show about the fat settlement that it milked out of you, but that's just part of the production. All you have to do is shrug your shoulders and shuffle off to your accountant who will gladly input that settlement as a business expense.
Don't believe me? It's all there, in a report by the U.S. PIRG, a nonprofit public interest research group that found civil settlements with federal regulators are often classified as a business expense.
Just look at BP. The oil company wrote off $15.3 billion of its $20.8 billion settlement with DOJ following the Deep Horizon oil spill, much the way a regular working stiff might plug in his or her healthcare costs. Likewise, JP Morgan Chase got a $11 billion tax break in 2012 following a $13 billion settlement that resolved those pesky mortgage fraud charges.
All in all, the U.S. PIRG found that the 10 largest settlements between 2012 and 2014 totaled more than $79 billion, and more than half were eligible for a tax deduction. That translates to $17 billion in tax revenue, a figure that outpaces the spending budget in 35 different states.
Oh, but don't worry, the DOJ--the agency most likely to broker these settlements and issue civil penalties--will hardly breathe a word. In fact, the agency is the least transparent about settlements and very rarely limits tax deductions in its settlements, according to the U.S. PIRG.
Take, for example, the $3 billion settlement paid by GlaxoSmithKline LLC in 2012, which remains the largest healthcare fraud settlement in history. The settlement included a vast array of kickback allegations, along with pricing and rebate claims, and drug safety concerns.
Within that $3 billion settlement, $2 billion was classified as a civil settlement, which is fully tax deductible, according to the U.S. PIRG. The remaining $1 billion represented a criminal penalty; however, the settlement did not include any language regarding the tax status of such a penalty.
Similarly, Abbott Laboratories Inc. paid nearly $1.5 billion to settle federal FCA allegations, including $800 million in tax deductible civil settlements. Again, the settlement did not specify whether the remaining criminal penalty could be used as a deduction.
Think about it this way: Let's say you've got a nasty speeding habit. At least once a week you get a speeding ticket on your way to work. At the end of the year, you dust off your calculator and tally up all the fines you've paid, and plug that number in when TurboTax asks "Have you paid any fines or settlements this year?"
Presto. A few thousand in fines is suddenly a business expense. With that kind of minimized penalty, driving 120 down the freeway seems almost logical.
OK, so maybe that kind of behavior will get your license suspended, but that minimum level of enforcement is reserved for traffic violations, not FCA regulations. Just look around and you'll see that others are taking advantage of this financial opportunity, like DaVita Healthcare Partners, which paid $800 million in civil settlements over the last year, or Adventist Health System, which forked over $118.7 million to resolve kickback allegations. You might have seen a news release, but the details of those settlements were kept under wraps.
It's been said that for larger pharmaceutical companies, these multi-billion dollar FCA settlements have become the cost of doing business, but did you have any idea the government would take that so literally?