EXCLUSIVE - JPMorgan settlement could cost bank closer to $9 billion

By Aruna Viswanatha and David Henry

WASHINGTON/NEW YORK (Reuters) - JPMorgan Chase & Co's preliminary $13 billion mortgage settlement with the U.S. government could end up costing the bank as little as $9 billion after taxes, because the majority of the deal is expected to be tax deductible, two sources said.

The deduction also means the government is getting less than it appears in this deal. Banks can often deduct legal settlements from their taxes, but cannot get tax benefits for penalties for violating laws.

JPMorgan and the U.S. government have been negotiating the tax treatment of the settlement. The outcome could have a dramatic impact on exactly what the deal ends up costing the bank, how it is perceived by the public, and whether it becomes a model for resolving government investigations of mortgage deals at other banks. (Reporting by David Henry in New York and Aruna Viswanatha in Washington; Editing by Dan Wilchins and Tim Dobbyn)