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Procopio: What do Sexual Harassment and Taxes Have in Common?

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  • Phillip L. Kossy, Partner, Procopio

While you might think this continues with a joke about walking into a bar, the truth is that the current cultural/legal upheaval surrounding sexual harassment and misconduct and the just-enacted tax reform bill actually do intersect in at least one direct way — buried in Section 13307 of the “Tax Cuts and Jobs Act,” located on page 206 of 503.

Section 13307 of the new legislation amends Section 162 of the Internal Revenue Code pertaining to “ordinary and necessary” business expenses that may be deducted from income.  New Section 162(q) of the IRC prohibits the deduction of “any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement” or of the attorney’s fees related to such settlement or payment.  In other words, the amount of any settlement of a sex harassment claim that is subject to a confidentiality agreement, or the attorney’s fees related to the case, are no longer allowed as deductions on a business’ federal tax return.

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