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Sexual Harassment Settlements Are No Longer Tax Deductible

Confidential sexual harassment settlements and accompanying attorney’s fees are no longer tax deductible under the new tax reform bill. In short, companies will no longer be able to use confidential settlements about sexual harassment as tax-deductible settlements. Non-confidential settlements can still be used for tax deductions. While the reform bill clarifies that sexual harassment settlements that carry non-disclosure agreements can no longer be tax deductions, it stops short of making all confidential settlements non-deductible. The bill's language that would include gender discrimination, retaliation, or Title IV is absent.

The goal of the provision is to uncover and unearth sexual harassment in workplaces before an employee can harass and mistreat multiple people. When a claim is settled with a confidentiality agreement, the offending party often avoids public scrutiny. Instead, it is allowed to maintain its position in the business in question. By enabling harassers to keep their status in the community and their jobs, it can be argued that they can continue stalking the workplace for victims with relative anonymity. On the other hand, many victims prefer that settlement statements be confidential to preserve their dignity. Under the provision, companies will be forced to consider confidentiality over tax deductibility. The new regulation appears to respond to the most recent Hollywood scandals that unseated multiple powerful men in the entertainment industry.  

The Hollywood Scandal

In October 2017, the New York Times first published an article revealing sexual harassment allegations against movie mogul Harvey Weinstein. After the New York Times article, the floodgates opened, and decades of sexual misconduct, rape, abuse of power, and confidential sexual harassment settlements were uncovered. With Weinstein dethroned, women, and in some cases men, who were victimized by Hollywood’s elite, found their voices. Allegations of assault, harassment, and abuse of power were levied against dozens of men in the entertainment industry, ranging from photographers, A-list actors, on-air personalities, and producers.

Aside from uncovering men in the entertainment industry who used their power to harass and coerce men and women attempting to make their Hollywood dreams come true, the investigation revealed how prevalent harassment is in all industries and walks of life. After the Weinstein allegations, the #metoo movement began. Actress, Alyssa Milano, asked women to place “Me Too” on social media posts to help the world understand just how prevalent sexual harassment and misconduct are. Within days, millions of posts on all social media outlets began appearing with the hashtag, giving the world a glimpse into the prevalence of a problem that has been kept secret for decades.

How Is Common Sexual Harassment?

While sexual harassment was brought to the forefront of everyone’s mind following the October expose, it is still difficult to quantify just how prevalent sexual harassment is in the workplace. The Washington Post, together with ABC news, polled women to uncover the issue's commonality. The poll found that more than half of women have experienced some form of sexual harassment during their adult lives. In addition, 30% of respondents noted that male colleagues perpetrated the unwanted advancements, and 25% of respondents stated the perpetrator was a man in a position of power.

Will the Provision Help?

The tax reform provision could help uncover perpetrators of sexual harassment, but it will not solve the problem entirely. Under the condition, a business will need to weigh tax deductions against anonymity, but that doesn’t mean a company must remove confidentiality agreements from sexual harassment settlements. In short, a business can attach a non-disclosure agreement to its payments. It might continue to protect men in influential positions but may be more likely to stamp out sexual harassment anonymity at lower levels. The more powerful the perpetrator, the more likely the business will protect them they work for, tax deductions or not. With that being said, it is an interesting provision that may allow more harassment claims to come to light and make workplaces safer. 

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