New Tax on Income from Third-Party Litigation Funding.
This bill establishes a new, high federal tax on income received by third parties (such as investment funds) from financing civil litigation. The goal is to curb the activities of these entities that profit from settlements and judgments. For citizens, this could potentially restrict access to external funding for expensive lawsuits, impacting their ability to pursue claims.
Key points
A new chapter is added to the Internal Revenue Code, imposing a tax on profits derived from litigation financing agreements.
The tax rate is high: the highest individual income tax rate plus an additional 3.8 percentage points, applied at the entity level of the covered party.
The tax applies to domestic and foreign third parties receiving funds under a litigation financing agreement, with exceptions for low-interest loans (max 7% or twice the 30-year Treasury yield) and agreements under $10,000.
A mandatory withholding requirement is introduced, obligating the party or law firm that entered the agreement to deduct and withhold 50% of the applicable tax rate from payments made to the third-party funder.
Introduced
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