In a little-noticed provision buried deep inside the new Tax Cuts and Jobs Act (signed into law on Dec. 22) is the following “denial of deduction”:
“Payments related to sexual harassment and sexual abuse – No deduction shall be allowed under this chapter for –
- any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement; or
- attorney’s fees related to such a settlement or payment.”
The statute adds a new Section 162(q) to the Internal Revenue Code, effective for amounts paid or incurred after December 22, 2017. Where applicable, it may require taxpayers to choose between non-deductibility of the payment and non-disclosure of the settlement.