Tax Tips from the Tax Lawyer

A new provision was added to the Internal Revenue Code (Section 162(q)) under the 2017 Tax Cuts and Jobs Act.  Section 162 generally provides deductions for ordinary and necessary trade or business expenses.  However, the newly-added Section 162(q) provides that confidential sexual harassment and sexual abuse settlements are no longer tax deductible as ordinary and necessary business expenses.  Section 162(q) states:

(q) Payments Related to Sexual Harassment and Sexual Abuse.  No deduction shall be allowed under this chapter for –

(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or

(2) attorney’s fees related to such a settlement or payment.

This new provision applies to payments made after December 22, 2017.