Agreement between Goldman Sachs and federal regulators to settle allegations of the bank’s misconduct in connection with the mortgage crisis includes a $936.25 million tax windfall for the bank. The proposed deal includes a substantial $2.385 civil monetary penalty, an $875 million cash payment, and $1.8 billion in consumer relief. The civil monetary penalty is non-deductible as per the tax code, but the remaining $2.675 billion is entirely tax deductible for the bank as an ordinary business expense.
By law, fines and penalties cannot be treated as regular business expenses, and therefore are not tax deductible. The cash payment and consumer relief portions of the payment, however, are not specifically designated as penalties and can therefore be deducted from Goldman’s taxes. The bank reported that the settlement would reduce its earnings in this period by roughly $1.5 billion on an after-tax basis.