Sexual Harassment: Deductibility of Sexual Harassment Expenses
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Sexual harassment lawsuits against employers are increasing with no end in sight, especially considering the recent United
States Supreme Court ruling which makes it easier for an employee to sue an employer. Employers are spending a great deal
of money defending these sexual harassment lawsuits. One of the issues each entity faces is whether the legal fees and payments
to settle such lawsuits are a deduction for federal income tax purposes. Sexual harassment claims usually involve verbal or
physical conduct at the workplace. Outside the workplace, harassment claims may arise from conduct on business trips, at business
meetings or at a clientbs or customerbs work location. Generally, the deductibility of legal fees and settlement payments
of a corporate defendant or other entity will depend upon whether its employee charged with harassment committed the action
within the scope of his/her employment. If, for instance, an employee rejects the president of corporation XYZ sexual advances
at the workplace and later the president takes employment actions against such employee, i.e., denying a promotion or a decrease
in salary, the legal fees and costs to defend and settle a sexual harassment claim by such employee should be deductible.
There is no clear answer, however. Each case is based upon the facts and circumstances of that case. Before settling any sexual
harassment lawsuit and taking a deduction a qualified tax attorney should be consulted.
© 1998 Broad and Cassel
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