Boeing May Face Scrutiny Over Settlement’s Tax Status

Boeing Co. may face congressional hearings into its $615-million settlement of ethics charges with the government if the company is allowed to take a tax deduction for the fine, three senators told the Justice Department.

“We are very concerned about the possibility that this settlement may be structured in a way that allows for payments made by the settling company to be tax-deductible, thereby leaving the American taxpayer to effectively subsidize its misconduct,” Republican Sens. Charles Grassley, John Warner and John McCain wrote in a letter to Atty. Gen. Alberto Gonzales dated June 29.

The letter asks Gonzales for an analysis of the tax treatment of the settlement and whether the costs may be covered by Boeing’s insurers. The information will “help us to determine the appropriateness” of hearings, the letter said.

The Justice Department didn’t immediately comment. The contents of the letter, a copy of which was obtained by Bloomberg News, were first reported by the New York Times.

Chicago-based Boeing, the second-largest U.S. defense contractor, and the Justice Department are finalizing an agreement reached in May that calls for the company to pay $565 million to cover civil claims and $50 million to settle criminal penalties related to the hiring of a Pentagon contracting official and improper acquisition of documents from Lockheed Martin Corp.

“The settlement does not address how the $565 million assessed against the company should be treated for tax purposes,” said Tim Neale, a Boeing spokesman. “Therefore, we have asked tax experts to examine the settlement and give us an opinion on the deductibility issue. We expect to make a decision in a few weeks.”

Boeing said June 29 that it would take a $615-million charge in the second quarter to cover the cost of the fine.