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The Tax Cuts and Jobs Act Impacts Settlements of Sexual Harassment and Abuse Claims

January 5, 2018


The recently enacted Tax Cuts and Jobs Act eliminated a business expense deduction for settlements of sexual harassment and sexual abuse claims that are subject to confidentiality restrictions.  Specifically, a “settlement or payment related to sexual harassment or sexual abuse,” and the “attorney’s fees related to such a settlement or payment,” are no longer a deductible business expense “if such settlement or payment is subject to a nondisclosure agreement.” IRC §162(q) (added to the IRC by §13307 of the TCJA).  Section 13307 became effective on December 22, 2017.

This new Code provision raises many questions, which the IRS has not yet addressed, including:

What is the impact of IRC §162(q) on the settlement process for sexual harassment or sexual abuse claims?

Employers will need to weigh the additional costs of a nondisclosure provision, which include the tax on the settlement payment and related attorney’s fees, and the value of a

Other Perspectives on Trends in Employee Noncompetition Agreements

In mid-May, the New York Times published a long article reporting a national trend that employers are expanding both the number of employees who are required to sign non-competition agreements and the types of employees required to sign these agreements.  The article emphasized stories of low-paid, low-level employees who could not find a new job, or had to take a lower paying job, because they signed a non-competition agreement.  The Times ran an editorial that urged legislatures to prohibit employers from restricting the employment opportunities of lower paid employees.

What is missing from this picture?

While the Times article mentioned states vary in enforcement of non-competition restrictions, noting that California prohibits all restrictions on employees moving to new jobs, it did not explain the important differences in how states other than California enforce non-competition restrictions.  The Times article also did not report the damage to a business that may

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