Nelson goes after BP for shifting oil-spill cleanup costs to taxpayers;

United States Senate
Washington, D.C. 20510

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MEDIA RELEASE: Thursday, May 12, 2011
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Nelson goes after BP for shifting oil-spill cleanup costs to taxpayer

Senator follows grilling of oil exec with legislation [ below ] to strip tax break

WASHINGTON, D.C. – Amid rising public angst over exorbitant gas prices and oil company profits, U.S. Sen. Bill Nelson took aim at one of the industry giants today for use of tax breaks to offset clean-up costs associated with last year’s devastating oil spill in the Gulf of Mexico.

During a hearing Thursday of the Senate Finance Committee, which was delving into gasoline prices and oil industry profits, Nelson pressed BP America chairman and president Lamar McKay on whether he thought it was wrong for the company to seek a tax write-off for costs associated with the spill.

Nelson’s questioning of BP came in response to the release of the company’s fourth quarter 2010 financial filing indicating it planned to generate $11.8 billion in tax savings as a result of the oil spill. BP is treating costs associated with the clean-up, compensation to victims and related legal expenses as the ordinary costs of doing business, which are tax deductible. The financial filing estimated BP’s oil-spill response would cost the company a total of $40.9 billion.

In a nutshell, that means taxpayers could be on the hook for about 29 percent of the clean-up cost.

“Surely, the Gulf oil spill was the result of wrongdoing, and yet you want to claim that as a tax credit,” Nelson said at the hearing. “(BP) may be entitled to this under the law, but that doesn’t make it right ... .”

McKay defended the write off as a “standard business expense.”

Just hours after that morning exchange with the BP executive, Nelson announced he had filed legislation to prevent all oil companies from shifting legal and clean-up costs associated with spills.

“BP agreed to pick up the entire tab for cleaning the mess up the Gulf,” Nelson said. “Shifting these costs back to the taxpayer shouldn’t be allowed.”

Nelson noted that in unrelated cases involving company wrongdoing the companies had voluntarily agreed not to deduct such things as legal expenses. His proposed legislation would prevent companies from deducting legal, clean-up and other costs associated with oil spills in U.S territorial waters as “ordinary and necessary” business expenses. The legislation would apply to most of BP’s expenses, he said.

Following is a transcript of Nelson’s exchange with BP America chairman Lamar McKay and the draft of his legislation.

Transcript of Sen. Nelson’s questioning of BP America’s Lamar McKay

U.S. Senate Finance Committee hearing on Oil and Gas Tax Incentives and Rising Energy Prices

Thursday, May 12, 2011

Nelson: Mr. McKay, let me register a difference of opinion with BP. You all, in your financial report in the 4th quarter of last year announced that the Gulf oil spill response cost was going to be about $41 billion dollars and that you reported a tax credit of almost $12 billion. Now, for activities that cause such harm, does it not seem wrong that you would take as a tax credit, lessening your taxes dollar for dollar, on the payments that you’re paying out to make peoples’ lives right?

McKay: Let me first comment that we’ve pledge all along to meet at every commitment under the law with the accident and the economic impacts of the accident. The $41 billion is a financial charge, we did not take a $12 billion credit. We will be following the law, following the tax code in terms of writing off standard business expenses as they occur-

Nelson: So you consider these as standard business expenses that you think, morally, you’re entitled to take as a tax credit?

McKay: The ones that are under the tax code as standard business expenses, yes and we will not write off things that are not under the standard business expenses.

Nelson: You know, it’s interesting that the Boeing company, when they had those kind of payment, they didn’t take them as a tax credit. It was also, what was the other company? Goldman Sachs; same thing. They did not- because the sensitivity, the wrongdoing that occurred. Surely, the Gulf oil spill was the result of wrongdoing, and yet you want to claim that as a tax credit. Now, I just want you to know that I respectfully disagree with your position, and I would urge the chairman and the ranking member to consider, he may be entitled to this under the law, but that doesn’t make it right, and I would ask, respectively, to the chairman that we consider changing the law to follow the example set by Boeing and Goldman Sachs.

112TH CONGRESS

1ST SESSION S.____



To amend the Internal Revenue Code of 1986 to disallow a deduction for amounts paid or incurred by a responsible party relating to a discharge of oil.

IN THE SENATE OF THE UNITED STATES

Mr. NELSON of Florida introduced the following bill; which was read twice and referred to the Committee on _________.

A BILL

To amend the Internal Revenue Code of 1986 to disallow a deduction for amounts paid or incurred by a responsible

party relating to a discharge of oil.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. DENIAL OF DEDUCTION FOR AMOUNTS PAID OR INCURRED BY A RESPONSIBLE PARTY.

(a) IN GENERAL.—Section 162 of the Internal Revenue Code of 1986 is amended by redesignating subsection

(q) as subsection (r) and by inserting after subsection (p) the following new subsection:

‘‘(q) CERTAIN EXPENSES OF A RESPONSIBLE PARTY.—

‘‘(1) IN GENERAL.—No deduction shall be allowed under subsection (a) for any amount paid or incurred by

a responsible party relating to any incident resulting in the discharge of oil into the navigable waters, other

than an incident caused by an act of God or an act of war.

‘‘(2) DEFINITIONS.—Any term used in paragraph (1) which is also used in the Oil Pollution Act of 1990 shall

have the meaning given such term by such Act.’’.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to returns of tax the due date of which

(including extensions of time) is after the date of the enactment of this Act.

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