Bill > HR3512

This bill introduces a new tax on income from litigation financing, targeting third-party entities that provide funding for legal actions. Specifically, the bill establishes a tax equal to the highest income tax rate plus 3.8 percentage points on "qualified litigation proceeds" received by a "covered party" (which can include individuals, corporations, partnerships, or sovereign wealth funds) through a litigation financing agreement. The bill defines a litigation financing agreement as a written contract where a third party provides funds to a party in a civil action in exchange for a direct or collateralized interest in the proceeds. The tax would apply to agreements over $10,000, with some exceptions for basic loan repayments and interest. Additionally, the bill requires a 50% withholding of the tax from litigation proceeds and makes several modifications to the Internal Revenue Code, such as excluding these proceeds from capital asset definitions and gross income calculations. The new tax rules would take effect for taxable years beginning after December 31, 2025, and aim to regulate and potentially discourage what the bill's title describes as "predatory" litigation funding practices.