On April 18, 2023, Dominion Voting Systems settled a highly anticipated defamation lawsuit with Fox News stemming from false statements the media giant had made about the company's voting machines during the 2020 U.S. presidential election. Dominion and Fox News Corporation settled for $787 million. After the settlement was announced, Fox News released this statement:
We are pleased to have reached a settlement of our dispute with Dominion Voting Systems. We acknowledge the Court's rulings finding certain claims about Dominion to be false.
This settlement reflects FOX's continued commitment to the highest journalistic standards. We are hopeful that our decision to resolve this dispute with Dominion amicably, instead of the acrimony of a divisive trial, allows the country to move forward from these issues.
Another thing the company may be hopeful about: the tax implications of a $787 million dollar settlement in a civil case in which the government was not a participant. As the media outlet The Lever reported the following day, the settlement could "mean a tax break as large as $213 million" for Fox News Corporation:
Thanks to an arcane line in the tax code, Fox can deduct that settlement payment from its income taxes, according to a company spokesperson and tax experts consulted by The Lever.
That's because federal law allows taxpayers to write off many legal costs, providing that they are "ordinary and necessary" business expenses. The IRS has repeatedly affirmed that for major corporations, paying out settlements is just part of the cost of doing business.
While the specific amount of the settlement that could be deducted, as well as Fox News' actual tax plans, are unclear, companies commonly deduct settlement fees as business expenses.
Speaking to The Lever, Brian Nick, Fox Corporation's chief communications officer, confirmed that the company considered at least a portion of the amount deductible, saying, "I can confirm tax deductibility but not the amount." Complicating factors include how much of the payment might be covered by insurance.
At issue is Section 162(a) of the U.S. tax code, which states, in part, that "there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business."
While court-ordered payments made as a result of violations of law are not deductible, payments incurred "by reason of any order of a court in a suit in which no government or governmental entity is a party" are, broadly speaking, deductible. Legal precedent suggests that "ordinary and necessary" expenses include punitive damages in lawsuits if incurred in connection with the "ordinary conduct of its business activities."
Speaking to The Lever, Daniel Shaviro, a professor of tax law at NYU, explained that if a corporation's business model puts it at risk of civil litigation, then a lawsuit like Dominion's likely fits within the scope of its ordinary business activities:
If your business model is to tell lies so that you'll get viewers and have lots of advertising revenues, then, odious though this business model may be, the tax system's job is to tax you on the profits that you actually make from it. [...] And those profits are indeed reduced when you are successfully sued by the victims of your malicious falsehoods.
Lever News estimated that the settlement could result in up to $213 million in deductions for Fox Corporation.