Bill > S1821

This bill establishes a new tax on income received from litigation financing, which is a practice where third-party entities provide funding to plaintiffs in exchange for a portion of any legal settlement or judgment. The proposed legislation would impose a tax equal to the highest individual income tax rate plus 3.8 percentage points on "qualified litigation proceeds" received by a "covered party" - which includes any third-party entity (like individuals, corporations, or sovereign wealth funds) that provides litigation financing. The tax would apply to written agreements where a third party provides funds to a plaintiff or law firm in exchange for a direct or collateralized interest in the legal action's proceeds. There are some exceptions, such as agreements involving less than $10,000 or those with limited repayment terms. The bill mandates that when litigation proceeds are distributed, 50% of the applicable tax must be withheld at the source. Additionally, the bill would exclude proceeds from litigation financing agreements from being classified as capital assets and would remove such proceeds from gross income taxation. The new tax provisions would take effect for taxable years beginning after December 31, 2025, and are designed to regulate and tax what some view as a growing and potentially predatory financial practice in the legal system.

Budget and Finance

https://www.congress.gov/bill/119th-congress/senate-bill/1821/all-info