Sponsors (4)
The bill increases survivors' net recoveries and access to tax-free damages by creating a presumption and outreach, while creating modest federal revenue loss and raising risks of privacy harms and potential misuse of the presumption.
Survivors (including women and low-income claimants) who receive damages for sexual acts or contact can exclude those payments from federal income tax and face a shifted evidentiary burden in their favor, increasing their net recovery and making it easier to obtain tax-free treatment.
Survivors and their advisors will have better access to information through a public-awareness program, making it more likely eligible victims learn about and claim the tax exclusion.
All taxpayers could face higher deficits or shifted tax burdens because large tax-free settlements reduce IRS receipts.
Survivors may be forced to disclose sensitive details (or risk not claiming the exclusion) due to publicizing the exclusion and evidentiary rules, increasing privacy, safety, and retraumatization risks.
Parties could exploit a presumption that settlement language credibly describes sexual conduct to improperly classify payments as tax-free when they are not genuinely tied to sexual abuse.
Based on analysis of 2 sections of legislative text.
Excludes damages for sexual acts or sexual contact from gross income and creates an evidentiary/burden‑shifting rule for such decisions/agreements.
Expands the federal income 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 if there are no medical records or observable injuries. It also creates evidentiary and burden-shifting rules treating a decision or settlement that states the damages were for such sexual conduct as credible evidence for tax audit purposes, directs a Treasury public-awareness effort, and sets limited effective-date rules for payments and agreements after enactment.
Official title: To amend the Internal Revenue Code of 1986 to exclude from gross income any damages, other than punitive damages, received on account of any sexual acts or sexual contact.
Introduced March 25, 2025 by Lloyd K. Smucker · Last progress April 28, 2026