“Harvey Weinstein Tax” May Affect Plaintiffs in Harassment Cases; Rob Wood Explains
The so-called “Harvey Weinstein tax” was included in the Tax Cuts and Jobs Act. Tax lawyer Rob Wood discussed the provision in an earlier report. Since the passage of the tax cut bill, there has been some concern that the language of the new law may affect people who bring abuse and harassment lawsuits. Wood explains the confusion in this report. He also discussed the provision in his article, “Harvey Weinstein Tax May Hit Both Plaintiffs and Defendants.”
Wood notes that employment lawyers have been concerned about the scope of the statute. Plaintiffs’ lawyers are worried that the new law will eliminate the deductibility of fees spent to obtain a damage award or settlement. The statute (§ 13307) makes reference to “payments related to sexual harassment and sexual abuse” where a confidentiality provision applies and says that such payments are not deductible and that “attorney's fees related to such a settlement or payment” are also not deductible. On its face, the provision seems to say that no attorney’s fees in such a case would be deductible, including fees paid by plaintiffs. “No one knows yet if the IRS [will] read it that way.”
Wood says that there are questions about the law that lawyers on both sides of the employment law bar will be asking. First of all, Wood notes, most settlements have some sort of confidentiality provision as part of the settlement documentation. Does that mean that every settlement agreement with some confidentiality provision will be subject to the new rule? Perhaps this new law will mark the end of confidentiality provisions in sex abuse and harassment cases.
Another concern will likely be the degree of harassment that must be involved in a case to trigger the Harvey Weinstein provision. In a case that is 100% concerned with abuse or harassment, the new law would certainly apply. On the other hand, Wood asks, what about a “garden variety” plaintiff’s case where everything is included in the release form? For example, the release for a wrongful termination case would almost certainly include everything the employer’s attorney can think of. Would throwing in a reference to sexual harassment in such a release bring the case within the reach of the new law?
Wood suggests that the provision needs to be addressed by Congress. There will be a technical correction bill at some point to fix problems with the new statute, but it is not certain that such a bill would fix this problem. In the meantime, lawyers will need to figure out what to do. One solution is to drop the confidentiality provision in the release. Another possibility, in a case where there are several claims being settled, might be a provision saying that zero dollars of the settlement relate to sexual harassment. Wood is not certain that such a provision would be given effect by the IRS, however. Yet another possibility, in a large settlement, might be an agreement that a smaller amount is the portion of the settlement attributable to sexual harassment claims.
Robert W. Wood is the Managing Partner of Wood LLP, San Francisco. Often listed among the best tax lawyers in America, Wood has broad experience in corporate, partnership and individual tax matters. Concerning the tax treatment of litigation settlements and judgments, he is perhaps the preeminent tax lawyer in the United States. He is also an authority on merger and acquisition tax matters, tax opinions, offshore account and entity disclosures, and many types of tax controversies. The Legal Broadcast Network is a featured network of Sequence Media Group.