Sponsors (4)
The bill makes settlements for sexual acts/contacts tax-free and improves claimants' ability to obtain the exclusion, benefiting survivors, while reducing federal revenue and creating administrative burdens and some tax-treatment uncertainty for other injury settlements.
Survivors and other claimants who receive settlements or awards for sexual acts/contacts will not owe federal income tax on those amounts, increasing their net recoveries.
When a decision or agreement expressly states damages are for a sexual act/contact, the burden shifts toward the IRS to disprove that characterization, making it easier for eligible claimants to retain the tax exclusion.
A public-awareness program will inform survivors and practitioners about the tax exclusion, increasing the likelihood eligible recipients learn about and claim the benefit.
Excluding these settlements from taxable income could reduce federal tax revenue, potentially increasing the deficit or shifting costs onto other taxpayers.
The IRS may face more disputes over whether awards are for sexual acts/contacts versus other damages, generating administrative and legal costs and creating uncertainty for taxpayers.
Taxpayers receiving settlements for non-sexual physical injuries could face uncertainty about tax treatment—especially when medical records aren’t available—because of a neutral non-inference clause.
Based on analysis of 2 sections of legislative text.
Expands the tax exclusion to cover amounts received on account of any sexual act or sexual contact and eases burden-of-proof for such awards.
Expands the federal tax exclusion for damages so that amounts received “on account of” any sexual act or sexual contact (as defined in federal criminal law) are excluded from gross income, even when there are no medical records or observable injuries. It also makes a decision or agreement stating damages are for such sexual conduct credible evidence for IRS burden-of-proof rules and treats the taxpayer as meeting certain burden-of-proof requirements on that issue. Applies the change to decisions or agreements with payments after enactment (with special rules about when a decision is treated as made and excluding simple revisions of pre-enactment agreements), and directs the Treasury Secretary to run a public-awareness program about the exclusion in consultation with relevant federal agencies.
Introduced March 25, 2025 by Lloyd K. Smucker · Last progress April 28, 2026