Tackling Predatory Litigation Funding Act

This bill would create a new federal tax on money that third-party lawsuit funders receive from a case. The tax rate would equal the top income tax rate for that year plus 3.8 percentage points, and it would apply even if the funder is a pass-through entity (like a partnership or S corporation) at the entity level . When a case pays out, any party or law firm that made a litigation funding deal must withhold part of the payment to the funder—equal to 50% of that tax rate—and send it to the government. The withheld amount counts as a tax credit for the funder when they file taxes .

• Who must withhold: a named party in the case or a law firm that made the financing agreement, if they control or receive the settlement or judgment funds .
• If withholding isn’t done, the responsible party can still face interest or penalties, even if the tax later gets paid by the recipient .

Key points

• Who is affected: Third-party litigation funding companies; parties and law firms that enter funding deals; pass-through entities that receive these proceeds .
• What changes: A new tax on funders’ income from cases, set at the top income tax rate plus 3.8 points; required withholding of 50% of that rate from payments to funders; withheld amounts count as credits for the recipient .
• When: The bill sets up the tax and withholding rules; an effective date is not shown in the provided text .