S. 1821

119th CONGRESS 1st Session

To 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.

IN THE SENATE OF THE UNITED STATES · May 20, 2025 · Sponsor: Mr. Tillis · Committee: Committee on Finance

Table of contents

• S. 1821
  • Sec. 5000E–1. Tax imposed.
  • Sec. 5000E–2. Definitions.
  • Sec. 5000E–3. Special rules.

Sec. 5000E–1. Tax imposed.

• (a) In general
  • A tax is hereby imposed for each taxable year in an amount equal to the applicable percentage of any qualified litigation proceeds received by a covered party.
  • In general
• (b) Applicable percentage
  • For purposes of subsection (a), with respect to any taxable year, the applicable percentage shall be the amount (expressed as a percentage) equal to the sum of—
    • the highest rate of tax imposed by section 1 for such taxable year, plus
    • 3.8 percentage points.
• (c) Application of tax for pass-Thru entities
  • In the case of a covered party that is a partnership, S corporation, or other pass-thru entity, the tax imposed under subsection (a) shall be applied at the entity level.

Sec. 5000E–2. Definitions.

In this chapter—

Sec. 5000E–3. Special rules.

• (a) Withholding of tax on litigation proceeds
  • Any applicable person having the control, receipt, or custody of any proceeds from a civil action (by settlement, judgment, or otherwise) with respect to which such person had entered into a litigation financing agreement shall deduct and withhold from such proceeds a tax equal to 50 percent of the applicable percentage (as determined under section 5000E–1(b)) of any payments which are required to be made to a third party pursuant to such agreement.
  • Withholding of tax on litigation proceeds
• (b) Applicable person
  • For purposes of this section, the term applicable person means any person which—
    • is a named party in a civil action or a law firm affiliated with such civil action, and
    • has entered into a litigation financing agreement with respect to such civil action.
• (c) Application of withholding provisions
  • (1) Liability for withheld tax
    • Every person required to deduct and withhold any tax under this chapter is hereby made liable for such tax and is hereby indemnified against the claims and demands of any person for the amount of any payments made in accordance with the provisions of this chapter.
    • Liability for withheld tax
  • (2) Withheld tax as credit to recipient of qualified litigation proceeds
    • Qualified litigation proceeds on which any tax is required to be withheld at the source under this chapter shall be included in the return of the recipient of such proceeds, but any amount of tax so withheld shall be credited against the amount of tax as computed in such return.
    • Withheld tax as credit to recipient of qualified litigation proceeds
  • (3) Tax paid by recipient of qualified litigation proceeds
    • If—
    • Tax paid by recipient of qualified litigation proceeds
      • any person, in violation of the provisions of this chapter, fails to deduct and withhold any tax under this chapter, and
      • thereafter the tax against which such tax may be credited is paid,
    • the tax so required to be deducted and withheld shall not be collected from such person, but this paragraph shall in no case relieve such person from liability for interest or any penalties or additions to the tax otherwise applicable in respect of such failure to deduct and withhold.
  • (4) Refunds and credits with respect to withheld tax
    • Where there has been an overpayment of tax under this chapter, any refund or credit made under chapter 65 shall be made to the withholding agent unless the amount of such tax was actually withheld by the withholding agent.
    • Refunds and credits with respect to withheld tax