The #MeToo sexual harassment awareness movement is more than a viral hashtag. #MeToo advocates gained notoriety as TIME magazine's “Person of the Year,” were heralded by Oprah Winfrey at the Golden Globes, and challenged powerful national players such as Hollywood mogul Harvey Weinstein, Fox News host Bill O'Reilly, USA Gymnastics physician Lawrence Nassar, among others. The aftermath has sparked a national reckoning that even Congress could not ignore.
In response to the #MeToo movement, Congress amended the Tax Code in December to limit business tax deductions related to employee sexual harassment claims. Unlike other ordinary and customary deductible business expenses when a discrimination claim is defended and settled, employers can no longer deduct confidential sexual harassment settlements and the attorneys' fees incurred defending the sexual harassment claims. This amendment reflects Congress' intent that "[c]orporations should not be allowed to write-off workplace sexual misconduct as a normal cost of doing business" if they choose to hide the harassment claims from the public.
This amendment applies to settlement amounts and attorneys' fees incurred after December 22, 2017. In resolving employee sexual harassment claims, employers must now weigh their need to keep settlements confidential against the availability of tax deductions for the cost of the settlement and the attorney’s fees incurred in connection with defending the claim. For truly scandalous or claims against top level executives, employers may choose to forgo tax deductions in favor of keeping the details of the settlement confidential. On the other hand, when settlement costs are financially burdensome, some employers, particularly small businesses, may have little choice other than to forego confidentiality in order to obtain the tax deduction.