Tackling Predatory Litigation Funding Act
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Progress
Where this bill stands in the legislative process.
- Introduced
- Passed Senate
- Passed House
- To President
- Became Law
Overview
This bill, the Tackling Predatory Litigation Funding Act, aims to tax income received by third parties involved in litigation financing agreements. It proposes a new tax on ‘qualified litigation proceeds’ – essentially, profits gained from litigation funded through such agreements – calculated as the sum of the highest federal tax rate and 3.8 percentage points. The bill establishes a definition of litigation financing agreements and requires withholding of tax on payments made to these third parties. It also modifies the definition of capital assets and excludes qualified litigation proceeds from gross income.
Key provisions
- Imposes a tax on ‘qualified litigation proceeds’ received by third parties involved in litigation financing.
- The tax rate is calculated as the highest federal tax rate plus 3.8 percentage points.
- Defines ‘litigation financing agreement’ to include specific contractual arrangements.
- Requires withholding of 50% of payments to third parties under litigation financing agreements.
- Modifies the definition of capital assets to include certain litigation financing arrangements.
- Excludes ‘qualified litigation proceeds’ from gross income.
- Establishes a process for refunds and credits related to withheld taxes.
- Effective date is set for taxable years beginning after December 31, 2025.
Who is affected
- Third-party litigation funders
- Individuals and entities receiving litigation funding
Bill text
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