A recent article on the Huffington Post (here) brings some attention to the the murky (legal) waters created by BP's settlement for the Deepwater Horizon oil spill that took place in 2010. Up for debate is whether or not BP should be able to deduct portions of the settlement cost as "business expenses" come tax-season.
Regardless of the outcome, this issue raises what, to me, is a more serious philosophical question - namely, what exactly is an oil company's business? I did a quick google search to see what the IRS has to say about deducting a business expense. From their website, they say "To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business."* Assuming that this cost is either "ordinary" or "necessary" leads to interesting conclusions.
*This comes from https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Deducting-Business-Expenses. Note, this is only for "small businesses and self employed. For the purposes of this article, I was too busy to wade into the IRS' international business tax code, but keep in mind, corporations are people too, so I have no problem applying these rules to BP.
If we take it that this is an "ordinary" expense, then we are saying that it is common and accepted (if not expected) that oil companies damage the environment. The fact that BP might be arguing this is both enlightening and frightening. Should they claim this to be an ordinary expense, it seems that they are readily admiting that serious (if not catastrophic) damage to the environment is an accepted cost of drilling for oil. I do not see how the IRS could turn down this logic. Oil spills have been happening since the dawn of drilling. BP is within their rights to ask that the government officially ackowledge its policy of accepting spills, and therefore that they be able deduct their costs as an ordinary business expense. Perhaps a catchy slogan for BP should be "Spill Happens."*
*BP, you are welcome to this slogan. I won't sue.
More disturbingly, should they claim that it was a "necessary" cost, then one implication is that they cannot extract oil without causing damage to the environment. This is not a "Whoops, this happened, I'll clean it up and it won't happen again" sort of situation. Imagine how absurd it would be for a greenskeeper to get angry at a football team for tearing up the football field (by the way, the government is NOT the football team in this analogy). Of course there was incidental damage to the lawn when 22 players with cleats raced over the field. Of course there are oil spills when we open holes in cap-rocks and then transport the oil around the world. Why would there not be? I can't even consistently get a soda from the soda fountain to my table without spilling, so I'm not surprised. But that's what deeming oil spills "necessary" costs means - we will always have them as long as we are drilling.
Form your own opinion, but I do not want BP to be able to write this off. At the same time, I will understand if the IRS lets them get away with this. In which case, it's time to be up-front about our relationship with oil companies and their business. Their business is destroying the environment (there is more than one way to read this clause, and I like each interpretation); how the IRS treats them does not change that fact.
To close, I leave you with this question: are you comfortable with the IRS making our country's moral decisions?
