Tax Deduction Could Shave Money Off Marsh Settlement

Dow Jones Newswire
February 7, 2005

Marsh & McLennan Cos. recently agreed to an $850 million settlement of bid-rigging charges with New York state regulators, but the financial-services giant looks likely to end up paying a lot less thanks to a tax deduction that could shave hundreds of millions from the headline figure, Monday's Wall Street Journal reported.

According to the agreement, the largest New York Attorney General Eliot Spitzer's office has struck with a single company, Marsh & McLennan can't pay the $850 million bill with insurance. Marsh, which apologized to clients but didn't admit any wrongdoing, had already set aside $232 million to cover settlement costs and announced plans to take a $618 million charge against earnings when it announces fourth-quarter results on March 1.

But because the money was earmarked for restitution to be spread among Marsh clients, the company will likely be able to claim a healthy tax deduction on the settlement, according to tax experts. Penalties and fines typically aren't tax deductible, but in Marsh's settlement with New York regulators there was no fine or penalty. Restitution or disgorgement of profits, on the other hand, can often be claimed as a deductible business expense and have been in past settlements with state and federal regulators.

The settlement with the New York attorney general and the New York State Insurance Department stems from an Oct. 14 civil suit filed by Mr. Spitzer that accused the firm's insurance-brokerage unit of rigging bids for large corporate- insurance contracts and steering business to insurers who paid the firm sizable so-called contingent commissions. The agreement, reached Jan. 31, followed marathon negotiations between the company and state officials.

Depending on the company's tax rate and the amount of the settlement that qualifies for a deduction, the company could shave hundreds of millions of dollars off the settlement's cost. Similar tax strategies helped reduce headline settlements in the Wall Street research scandal and in several settlements among mutual funds dealing with improper trading of fund shares.

(Wall Street Journal Staff Reporter Ian McDonald contributed to this report.)

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