Sponsors (9)
The bill would reduce tax burdens and simplify tax treatment for litigation proceeds and financed claims while providing clearer rules for administrators, but it would lower federal revenue and risk increased disputes and inequitable tax advantages for better‑funded claimants.
Individuals and businesses who receive qualified litigation proceeds would not have to include those proceeds in gross income, lowering their tax liability on settlements and judgments.
Parties using third‑party litigation financing would have those proceeds treated as non‑capital assets, avoiding capital gains treatment and simplifying tax reporting for financed claims.
Clarifying definitions and creating a statutory framework for litigation financing gives the Treasury clearer authority to issue rules, improving tax administration certainty for taxpayers, funders, and the IRS.
All taxpayers and the federal budget could be harmed because excluding qualified litigation proceeds from gross income would reduce federal tax revenues and could increase deficits or shift the tax burden to other taxpayers.
Taxpayers, litigation funders, and the IRS may face increased disputes and compliance costs because the exclusion could trigger controversy over what qualifies as 'qualified litigation proceeds', leading to more audits and litigation.
Claimants with access to litigation financing and those able to structure arrangements may gain tax advantages, enabling tax planning or avoidance strategies that favor wealthier or better‑funded parties over ordinary claimants.
Based on analysis of 2 sections of legislative text.
Classifies litigation financing and proceeds as non-capital assets and excludes qualified litigation proceeds from gross income for federal tax purposes.
Official title: Amend the Internal Revenue Code of 1986 to establish a tax on income from litigation which is received by third-party entities that provided financing for such litigation.
Introduced May 20, 2025 by Thomas Roland Tillis · Last progress May 20, 2025
Treats litigation financing agreements and litigation proceeds as non-capital assets and excludes certain litigation proceeds from gross income for federal tax purposes. The change adds new definitions and an exclusion to the Internal Revenue Code and takes effect for taxable years beginning after December 31, 2025. The bill revises the capital asset definition to exclude litigation financing arrangements and creates a new tax provision excluding "qualified litigation proceeds" from gross income, with conforming table and cross-reference updates to the Internal Revenue Code.