Responding to reports that BP’s $32 billion in oil spill charges could yield $10 billion in tax savings (“about half the amount pledged to aid gulf coast victims of the catastrophe”), Sen. Bill Nelson sent a letter yesterday to Senate Finance Committee Chairman Max Baucus and Ranking Member Charles Grassley calling for an investigation.
BP noted the tax credits in its latest earnings report (bottom of page six), filed this week with the Securities and Exchange Commission, in which it reported a net loss of just over $17 billion.
The $32 billion on which the tax credit is based could mean that U.S. taxpayers are footing the bill for cleanup efforts as well as the $20 billion relief fund. According to The Washington Post,
Under U.S. corporate tax law, companies can take credits on up to 35 percent of their losses.
The credit for BP could mean, however, that taxpayers will indirectly foot part of the bill for the $20 billion fund that BP established to compensate people and businesses harmed by the disaster.
On Tuesday, White House press secretary Robert Gibbs said U.S. taxpayers would not be responsible for the cost of the spill. When asked whether BP should be claiming a credit, Gibbs said, “I don’t think anybody would prefer that they do that.”
Gibbs would not say whether the president would press BP on the tax deduction.
Nelson’s letter, in full:
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 BP’s $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 committee’s attention, and I look forward to working with you to ensure that American taxpayers are not left with a bill for the oil spill.
cc: Timothy Geithner