Hundreds of sexual assault claims have been filed against the Boy Scouts of America (BSA) following the emergence of the organization’s lengthy sexual abuse and misconduct records it calls its “ineligible volunteer files.” In the midst of the litigation, the organization is reportedly considering Chapter 11 bankruptcy protection.
What Would Bankruptcy Mean for the BSA Abuse Victims?
Although executives have noted that a final decision about filing for bankruptcy has not been made yet, the BSA announced that by exploring its options, it can ensure its programs continue uninterrupted. For the plaintiffs involved in the abuse case, the filing will suspend the lawsuits and the investigation, which would delay the victims’ ability to obtain justice from the organization that failed to protect them.
Still, if the BSA does decide to pursue bankruptcy, it might not be effective in avoiding responsibility for the abuse. In 2017, the Supreme Court denied GM’s efforts to use bankruptcy to block lawsuits over injuries and financial losses related to its ignition switch defect.
Sexual Abuse Settlements Are Taxable
Regardless of whether the BSA successfully files for bankruptcy or not, any potential settlements with the BSA may be taxable under President Trump’s new tax reform law, which prevents individuals and businesses from getting a tax write-off from the settlements and related legal fees. According to Section 162(q) of the tax code:
(q) PAYMENTS RELATED TO SEXUAL HARASSMENT AND SEXUAL ABUSE. — No deduction shall be allowed under this chapter for — (1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney’s fees related to such a settlement or payment.
In other words, if there is a non-disclosure agreement involved in the BSA’s operations, the organization would not be able to receive a tax deduction on their payment, settlement, or legal fees. (Not that it’s a bad thing in this case. The BSA shouldn’t be given any breaks.) However, the new tax law could also be harmful for plaintiffs. The “Harvey Weinstein tax” means that sex abuse victims will not be able to deduct their attorney fees if they receive a settlement from a sexual harassment case. To them, this is simply adding insult to injury.
This financial move by BSA is likely geared to limiting or eliminating the claims against them. We hope the organization does the right thing and takes responsibility for the heinous abuse the children suffered at the hands of some of its volunteers.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).