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New Tax Law Impacts Confidential Sexual Harassment Settlements

By Sheryl J. Willert, Williams Kastner, Member

SEATTLE, WA (January 26, 2018) — On December 22, 2017, in a little known and almost completely unpublicized action, the United States Congress quietly eliminated the ability of employers to deduct from ordinary business expenses any settlements related to sexual harassment or sexual abuse claims that are subject to nondisclosure agreements.  Under this amendment, both amounts paid in settlements as well as any attorney’s fees associated with those settlements can no longer be filed with the Internal Revenue Service as a business expense when (1) there are allegations of sexual harassment or sexual abuse and (2) those settlements require confidentiality as a term and condition of settlement. The amendatory language can be found at Section 13307 of the Tax Cuts and Jobs Act. This change amends Internal Revenue Code Section 162(q). by ad13307.  

While the implications of this change are currently unknown, this change will at a minimum require attorneys and their clients to evaluate whether the increased tax burden associated with a confidentiality agreement in sexual harassment matters outweighs the desire for confidentiality. Additionally, this change may have a profound effect on ability of claimants to achieve settlement and the desire of those accused to seek resolution short of trial. 

About Williams Kastner

Williams Kastner has been serving clients in the Pacific Northwest since 1929 with attorneys in offices throughout Washington, Oregon, and Alaska, as well as affiliated offices in China. The firm offers a full range of legal services to local and international clients.