It's to be hoped that the American taxpaying public is thrilled with the $20.8-billion settlement announced Monday between BP and the Justice Department over the 2010 Deepwater Horizon oil spill. That's because the taxpayers are likely to cover a large portion of BP's bill.
Earlier estimates of the tax deduction available to BP from the deal placed the sum at more than $5 billion. That math was done this summer, when BP first agreed to a settlement then estimated at about $18.7 billion for damage to Gulf of Mexico communities and the ecosystem from the disaster. Atty. Gen. Loretta Lynch on Monday attributed the discrepancy to a refinement of the original estimates of BP's restoration obligations, and credit for money the company already has paid.
The estimate that more than $15 billion of the final settlement will be tax deductible sounds correct to University of Michigan law professor David Uhlmann, former chief of the Justice Department's environmental crimes section. Restitution on damage claims and restoration of the damaged environment have long been designated by the IRS as deductible charges. "That makes sense," he told me. "They're business expenses."
BP and Justice Department spokespersons hadn't responded to our queries about the issue as of the time of writing. We'll update this post once we hear back. According to an early transcript of the joint press conference held Monday by Lynch, Commerce Secretary Penny Pritzker, Agriculture Secretary Tom Vilsack, and Environmental Protection Agency Administrator Gina McCarthy, reporters didn't ask any of the speakers about tax treatment of the deal.