Are Nondisclosure Agreements in Settlements Dead? Tax Expert Rob Wood Thinks So

Are Nondisclosure Agreements in Settlements Dead? Tax Expert Rob Wood Thinks So

The changes to the tax code that took effect in January include language that does away with nondisclosure agreements in sexual abuse or harassment cases by eliminating the deduction for such settlements if nondisclosure is involved. A recent litigation settlement raises the question whether nondisclosure agreements are going away. Tax lawyer Rob Wood discusses the subject, one that he also discussed in his Forbes article, “As Fox Settles Suits Without Confidentiality, Will Nondisclosure Provisions Disappear?.”

Wood notes that 21st Century Fox, the parent of Fox News, recently settled with 18 current and former employees for $10 million. What was surprising was that the settlement did not include a nondisclosure agreement, and such agreements are typically part of any litigation settlement. Wood says that he has never seen a settlement agreement that did not have some sort of confidentiality provision.

Wood says that the settlement reflects the “Harvey Weinstein” provisions added to the tax law that come into play in cases involving sexual harassment or abuse. The law now denies the defendant the chance to deduct either the settlement money or the attorney fees if a nondisclosure agreement is part of the settlement. Wood points out that in most employment cases there are allegations of all sorts, including some that might be sexual harassment. In the release in an employment case, the defense counsel will typically include a long list of possible claims, so that everything possible will be released. For cases involving gender discrimination, for example, there will likely be some claim of sexual harassment.

It’s not entirely clear what Fox was thinking about with the settlement. But the cases involve a variety of claims, among them claims of sexual abuse or harassment. Wood says that, in his opinion, it is clear how the new tax law should be interpreted when there are abuse and harassment claims mixed in with many other claims and all of them are settled with one check and one release. Does the language in IRC § 162(q) mean that none of the settlement can be deducted if there is a nondisclosure agreement? Wood thinks that’s what it means. Another possibility might be to assign what portion of a settlement amount is related to sexual abuse or harassment in the hope that the rest can be deducted.

Wood suggests that the best answer may be to do what was done in the Fox settlement and abandon any attempt at confidentiality in the settlement.

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.

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