July 26, 2023

Whitehouse Introduces Bill to Eliminate Tax Breaks for Defamation Payments by Giant Corporations Like Fox News

DEFAME Act would close tax loophole that allows big corporations to write off giant defamation payments as an “ordinary and necessary” business expense

Washington, D.C. – Senator Sheldon Whitehouse (D-RI), Chairman of the Senate Budget Committee, today introduced the Denying Expenditures for False Accusations with Malicious Effect (DEFAME) Act, legislation that would prohibit corporations with more than $10 billion in revenue from taking an income tax deduction for certain defamation payments totaling more than $500 million.

“Taxpayers shouldn’t have to foot the bill for multi-billion-dollar companies like Fox News when they get caught selling malicious lies that are damaging our democracy,” said Whitehouse.  “There is nothing ‘ordinary and necessary’ about lying to the American people.”

In April, Fox News reached a settlement with Dominion Voting Systems for $787.5 million, one of the largest defamation settlements in U.S. history.  Dominion brought the suit in March 2021, alleging that Fox News and Fox Corp. made defamatory statements following the 2020 election when Fox newscasters asserted that Dominion’s voting machines inaccurately tallied votes and purposefully rigged the presidential election for President Joe Biden.  Fox is also currently facing a defamation suit from Smartmatic, a separate voting software company, over similar statements relating to the 2020 election.

Under current corporate income tax law, Fox Corp. is allowed to deduct the entirety of the Dominion settlement payment and related legal costs from its income as an “ordinary and necessary” business expense.  It’s estimated that this tax benefit could be worth up to $213 million for Fox.  In contrast, corporations cannot deduct any payments to government agencies that are made due to illegal conduct or potentially illegal conduct under investigation.

According to the DEFAME Act, corporations with over $10 billion in revenue would be unable to take an income tax deduction for defamation payments worth more than $500 million.  Covered defamation payments include settlements, any other court-ordered payments, legal fees, and increased insurance premiums that result from such defamation cases.  The prohibition would apply only in connection with lawsuits for defamation that require proof of actual malice.  The legislation would apply to Fox’s Dominion settlement, as it would apply to payments made after December 31, 2022.

The full bill text is available here.

Meaghan McCabe, (202) 224-2921

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Meaghan McCabe, (202) 224-2921