Sen. Sheldon Whitehouse (D-R.I.) introduced a new bill today that would stop major corporations from claiming tax deductions on defamation settlements. Whitehouse’s legislation comes after The Lever’s report this spring that Fox News can claim a tax break larger than $200 million from its historic $787 million defamation settlement for spreading election lies.
Similar legislation has already been introduced in the House. Both bills would revise the tax code provision that allows corporations to deduct “ordinary and necessary” business expenses to exclude attorneys fees and settlements paid as a result of defamation lawsuits.
“Taxpayers shouldn’t have to foot the bill for multi-billion-dollar companies like Fox News when they get caught selling malicious lies that are damaging our democracy,” Whitehouse said in a statement to The Lever. “There is nothing ‘ordinary and necessary’ about lying to the American people.”
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In the wake of the 2020 presidential election, Fox News hosts repeatedly peddled the lie that Dominion, the private equity-owned voting machine company, had enabled voter fraud to steal the election from President Donald Trump.
“Dominion became the connective thread in a prefabricated election fraud story that needed a villain,” the company claimed in its suit against Fox News and its parent company Fox Corporation.
For example, Trump’s lawyer Sidney Powell frequently appeared on Fox to blame Dominion for stealing votes. “[Dominion] is where the fraud took place, where they were flipping votes in the computer system or adding votes that did not exist," she said in one appearance.
In April, Fox paid Dominion a $787 million settlement to end the lawsuit, the terms of which have been kept secret. According to experts consulted by The Lever, Fox can deduct the settlement from its taxes and claim a break of up to $213 million.
“I can confirm tax deductibility but not the amount,” Brian Nick, Fox Corporation’s chief communications officer, told The Lever in an email in April.
Whitehouse’s bill, entitled the Denying Expenditures for False Accusations with Malicious Effect (DEFAME) Act, would prevent companies with more than $10 billion in revenue from claiming tax deductions on defamation payments worth more than $500 million.
Rep. Brendan Boyle (D-Pa.) previously introduced a separate bill in the House that would prevent corporations of any size from claiming deductions on settlements and attorneys fees related to defamation claims “when the party has admitted to guilt or culpability,” as The Lever reported.
Both Whitehouse and Boyle’s bills take effect at the beginning of 2023, meaning they would apply to Fox’s historic settlement — preventing the company from claiming the massive deduction.
Whitehouse’s legislation applies to settlements in which the preceding lawsuit alleged “actual malice” — meaning the party knowingly lied or acted with “reckless disregard” for the truth.
Dominion had alleged in its suit that privately, Fox executives and employees acknowledged that the claims it broadcasted against the voting machine company were lies. After the settlement, Fox acknowledged in a statement that the court had found “certain claims about Dominion to be false.”
Under current law, corporations cannot deduct settlements paid to the federal government if they are related to the “violation of any law,” but can deduct them if they are structured as “restitution” or “remediation” payments. But settlements between private entities are deductible as business expenses, with at least one exception: Republicans’ 2017 tax reform bill changed the tax code to prevent sexual harassment or abuse settlements that contain nondisclosure agreements from being deducted.
Earlier this month, Fox News was hit with a new defamation lawsuit over former primetime host Tucker Carlson’s allegedly false claims that an Arizona man, Ray Epps, was an undercover FBI agent and had helped orchestrate the January 6 insurrection at the capitol.