Up To $7 Billion Of JP Morgan's Mortgage Settlement Could Be Tax Deductible

There have been a few sticking points in the negotiations between the government and JP Morgan in its historic $13 billion mortgage settlement.

One of those points has been the tax deductibility of the settlement. The government did not want JPM to get any kind of tax benefit from penalty. JP Morgan, naturally, thought otherwise.

Now that all is said and done, though, it looks like up to $7 billion of JP Morgan's settlement could be tax deductible.

Of the $13 billion settlement, $9 billion is considered a penalty paid by the bank (the other portion goes home owner relief).

Of that $9 billion, $2 billion is definitely not tax deductible, according to the settlement, as that money is being paid specifically to address bad mortgages issued by JPM.

The rest of that $9 billion, though, is meant to address bad mortgages issued by Washington Mutual and Bear Stearns. JP Morgan could still deduct those from its taxes, according to the agreement. How much exactly is up to the IRS.

This is sure to make a lot of people in Washington pretty angry.

Earlier this month, Americans for Tax Fairness and the U.S. PIRG presented Congress with a 160,000 signature petition asking the Justice Department to add a provision to the settlement that would stop this from happening, and a bunch of Congressmen have jumped on board, calling U.S. Attorney General Eric Holder to do something.

Then five Senators sent the DOJ a letter earn to "ensure the final settlement is clear about the tax treatment of the entire settlement amount and explicitly prohibits the tax deductibility of such payments."

At the same time, Congressman Peter Welch (D-VT) has introduced a bill to the House that would end the corporate tax deductibility of all legal settlements, it's called The Stop Deducting Damages Act(HR 3445).

Maybe a lot.