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Copyright 2010 States News Service

 July 29, 2010 Thursday

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BYLINE: States News Service

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The following information was released by Florida Senator Bill Nelson:

U.S. Sen. Bill Nelson today called for a congressional inquiry of plans BP has announced to use steep losses from the oil spill to cut its U.S. tax bill by $10 billion.

BP said yesterday it would take a $32 billion charge associated with the oil-spill cleanup, which would yield the $10 billion in tax savings or, about half the amount pledged to aid Gulf coast victims of the catastrophe.

That would be unacceptable, Nelson said today in a letter to the chairman of the Senate Finance Committee in which the Florida Democrat called for hearings. In the letter, Nelson, a member of the committee, posed several questions, including:

To what extent will BP be deducting legal expenses incurred in defending against nondeductible fines and penalties ?

Can and should BP deduct the full cost of the $20 billion it is transferring to an escrow fund for injured parties ?

Nelson reminded Baucus that just three years ago Boeing sought to write off a $615 million settlement with the government. But the company abandoned plans to deduct the money after it came under fire in the U.S. Senate. Also, Nelson noted Goldman Sachs is electing not to deduct its $550 million settlement recently announced with the SEC.

Following is Nelsons letter to Sens. Max Baucus and Charles Grassley, along with a Wall Street Journal article on the issue.

July 28, 2010

The Honorable Max Baucus

The Honorable Senator Charles Grassley

Chairman

Ranking Member

U.S. Senate Committee on Finance

U.S. Senate Committee on Finance

219 Dirksen Senate Building

219 Dirksen Senate Building

Washington, D.C. 20510

Washington, D.C. 20510

Dear Chairman Baucus and Senator Grassley,

I was appalled upon learning that BP intends to shift nearly $10 billion of the costs related to the Gulf oil spill to the backs of American taxpayers, including the very taxpayers whose lives have been devastated by the spill. Simply put, that would be unacceptable.

This is the result of tax rules that allow BP to deduct most of the costs it will incur as a result of the clean-up effort, making payments to injured parties under the Oil Pollution Act, and defending its reckless actions in court.

I urge the committee to initiate an investigation into the federal tax treatment of the various costs and expenses incurred by BP as a result of the Deepwater Horizon oil spill.

How would BP be able to generate $10 billion in tax savings, when $12.2 billion of BPs $32.2 billion charge on its financial results appears to be for nondeductible statutory penalties and fines ?

To what extent will BP be deducting legal expenses incurred in defending against nondeductible fines and penalties ?

Can and should BP deduct the full cost of the $20 billion it is transferring to an escrow fund for injured parties ?

Will BP claim deductions for compensatory damages paid to federal and state governments ?

As a basic policy matter, is it appropriate for BP to claim a deferred tax benefit as a result of any negligent actions in the Gulf of Mexico?

I believe these questions deserve the committees attention, and I look forward to working with you to ensure that American taxpayers are not left with a bill for the oil spill.

Sincerely,

Bill Nelson

cc: Timothy Geithner

Wall Street Journal

BP Seeks Tax Cut on Cleanup Costs

By NEIL KING JR.

BP PLC calculated the cost of cleaning up the Gulf oil spill would cut its tax bill by $10 billion, a move experts said was legal but could still prompt questions from Congress.

In releasing second-quarter results Tuesday, the London-based oil giant said it was taking a pretax charge of $32 billion to cover damages, business claims and cleanup costs over the next several years.

That total will be offset against its U.S. tax bill, resulting in a $10 billion reduction in taxes, the company said. The tax reduction will cut the company's anticipated net spill-related losses to $22 billion, the company said.

BP paid $10.4 billion in taxes world-wide last year, according to its 2009 annual report.

Tax experts said that BP's filing reflected standard accounting practices, even if the sums involved were unusually large.

"There is nothing unusual about this, as damages of this sort are always deductible," said J. Walker Johnson, a tax lawyer at Washington law firm Steptoe and Johnson.

"BP would just have to do it in such a way that any deduction being taken matched actual losses being incurred," he said.

But the idea of BP getting a tax break could stir complaints from Capitol Hill.

One Democratic aide said the issue was likely to be taken up by Democratic tax writers within the House Ways and Means Committee. But others said it was unclear whether Congress could intervene in what is otherwise a normal tax write-off.

Lawmakers have focused in particular on whether BP planned to seek a tax deduction for the $20 billion escrow fund it agreed to establish to pay spill claims. Under pressure from the White House, BP agreed to establish the fund last month to pay claims to individuals, businesses and states hurt by the spill.In its filing Tuesday, BP listed the fund among the $32 billion it expects to pay out in assorted damages. The company will pay into the fund over the next three years.

BP said in its filing that spill-related payouts could easily exceed $32 billion.

The company said it was including in its anticipated losses the penalties it expected to pay under the federal Clean Water Act. For normal spills, those penalties can range up to $1,100 a barrel of oil spilled.

BP said that in calculating its losses under the act, it assumed that the government wouldn't find that the spill was the result of "gross negligence." A finding of gross negligence could raise the penalty to $4,300 a barrel.

U.S. authorities have estimated that the spill leaked as much as 65,000 barrels a day into the Gulf of Mexico over nearly three months.

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