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U.S. PIRG urges IRS to prevent UBS from writing off $1.5 billion settlement as tax deduction

Ryan Pierannunzi

Ryan Pierannunzi

U.S. PIRG urged the IRS last week to prohibit UBS from writing off the $1.5 billion settlement between the bank and federal regulators as a tax deduction.

“Doing so would shift millions of dollars of the penalty onto taxpayers,” Ryan Pierannunzi, a tax and budget associate with U.S. PIRG, said. “UBS should be held fully accountable for its wrongdoing, and taxpayers should be protected from picking up the tab.”

In addition to the $1.5 billion settlement, $1.2 billion of which will be paid to the U.S. Department of Justice and CFTC, UBS admitted to fraud and manipulation of Libor. The remainder of the settlement will go to the U.K.’s FSA and Swiss FINMA.

UBS Securities Japan Co., Ltd., the bank’s Japanese subsidiary, also entered a plea related to claims that it manipulated Yen Libor, according to Zacks.

Pierannunzi said that while the Justice Department has ensured that UBS will not be able to deduct its $500 million portion of the settlement, UBS may still be able to deduct the $700 million set to go to the CFTC, thereby reducing its future tax bill by up to $245 million.

“$245 million is quite a hidden bank fee,” Pierannunzi said. “Every dollar that UBS avoids paying in taxes as a result of deducting this settlement would be lost revenue that the public will be forced to make up for through cuts to public services, higher taxes or an increase in our national debt. If UBS takes a $245 million tax benefit, then the result of today’s settlement would fall from $1.2 billion down to a net transfer of $955 million paid to the U.S. Treasury.”

UBS was fined $47.6 million in November for failing to prevent unauthorized trading that resulted in a $2.3 billion loss. The firm was substantially affected by the recent financial crisis and suffered massive losses on credit bets, prompting the Swiss government to come to its aid. UBS is now subject to stringent capital rules and announced in recent months measures to downsize its troubled units and develop its core businesses, Zacks reports.

“Allowing UBS to write off part of this settlement as a normal business expense would add insult to injury,” Pierannunzi said. “When a company like UBS negotiates a tax-deductible settlement for its destructive wrongdoing, the public loses four times over. First, the public suffers the direct impact of corporate wrongdoing. Second, taxpayers are forced to shoulder part of the amount of the penalty because the public must cover the cost of the forgone revenue. Third, future deterrence of corporate wrongdoing is weakened. And fourth, the absence of a trial eliminates opportunities for a public airing of evidence about corporate misdeeds and the lax regulations that can lead to them.”

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