Employment Discrimination Award Tax Relief Act

Summary: Employment Discrimination Award Tax Relief Act - Amends the Internal Revenue Code, with respect to expenses incurred and amounts received in connection with employment discrimination claims, to, among other things:  (1) provide for the deduction of expenses incurred in pursuing such a claim; and (2) limit the tax based on income averaging for back pay received from pursuing such a claim.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Employment Discrimination Award Tax 
Relief Act''.

SEC. 2. DEDUCTION OF EXPENSES PAID OR INCURRED IN CONNECTION WITH 
              ASSERTING OR PROSECUTING A CLAIM FOR AGE, GENDER, RACE, 
              OR OTHER FORM OF PROHIBITED EMPLOYMENT DISCRIMINATION OR 
              FOR RELATED CLAIMS.

    (a) In General.--Paragraph (2) of section 62(a) of the Internal 
Revenue Code of 1986 (relating to the definition of adjusted gross 
income) is amended by adding after subparagraph (C) the following new 
subparagraph:
                    ``(D) Expenses of employees in bringing or 
                prosecuting employment discrimination claims or related 
                claims.--The deductions allowed by part VI (section 161 
                and following) which consist of expenses paid or 
                incurred by the taxpayer in connection with the 
                assertion or the prosecution by or on behalf of the 
                taxpayer as an employee or a former employee, against 
                the taxpayer's employer or former employer, of any 
                claim--
                            ``(i) for age, gender, race, or other form 
                        of employment discrimination prohibited by 
                        Federal, State, or local law, or
                            ``(ii) for emotional distress or other 
                        injury relating to such claimed employment 
                        discrimination.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to expenses paid or incurred in taxable years beginning after December 
31, 1985.

SEC. 3. TREATMENT FOR ALTERNATIVE MINIMUM TAX PURPOSES OF EXPENSES PAID 
              OR INCURRED IN CONNECTION WITH ASSERTING OR PROSECUTING A 
              CLAIM FOR AGE, GENDER, RACE, OR OTHER FORM OF PROHIBITED 
              EMPLOYMENT DISCRIMINATION OR FOR RELATED CLAIMS.

    (a) In General.--Clause (i) of section 56(b)(1)(A) of the Internal 
Revenue Code of 1986 (relating to adjustments in computing alternative 
minimum taxable income and as applicable to individuals) is amended by 
inserting before the comma ``other than the deductions allowed by part 
VI (section 161 and following) which consist of expenses paid or 
incurred by the taxpayer in connection with the assertion or the 
prosecution by or on behalf of the taxpayer, as an employee or a former 
employee, against the taxpayer's employer or former employer, of any 
claim--
                                    ``(I) for age, gender, race, or 
                                other form of employment discrimination 
                                prohibited by Federal, State, or local 
                                law, or
                                    ``(II) for emotional distress or 
                                other injury relating to such claimed 
                                employment discrimination.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to expenses paid or incurred in taxable years beginning after December 
31, 1985.

SEC. 4. EXCLUSION FROM GROSS INCOME FOR DAMAGES RECEIVED ON ACCOUNT OF 
              AGE, GENDER, RACE, AND OTHER FORMS OF PROHIBITED 
              EMPLOYMENT DISCRIMINATION.

    (a) In General.--Section 104(a) of the Internal Revenue Code of 
1986 (relating to compensation for injuries or sickness) is amended by 
striking ``and'' at the end of paragraph (4), by striking the period at 
the end of paragraph (5) and inserting ``; and'', and adding after 
paragraph (5) the following new paragraph:
            ``(6) amounts received (whether by suit or agreement and 
        whether as lump sums or as periodic payments) on account of any 
        claim--
                    ``(A) for age, gender, race, or other form of 
                employment discrimination prohibited by Federal, State, 
                or local law (other than amounts representing backpay), 
                or
                    ``(B) for emotional distress or other injury 
                relating to such claimed employment discrimination.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts received in taxable years beginning after December 31, 1985.

SEC. 5. LIMITATION ON TAX BASED ON INCOME AVERAGING FOR BACKPAY 
              RECEIVED ON ACCOUNT OF AGE, GENDER, RACE, AND OTHER FORMS 
              OF PROHIBITED EMPLOYMENT DISCRIMINATION.

    (a) In General.--Subchapter Q of chapter 1 of the Internal Revenue 
Code of 1986 (relating to readjustment of tax between years and special 
limitations) is amended by inserting after the table of parts the 
following new part:

 ``PART I--AVERAGING OF INCOME FROM BACKPAY AWARDS RECEIVED ON ACCOUNT 
                      OF EMPLOYMENT DISCRIMINATION

                              ``Sec. 1301. Income from backpay received 
                                        on account of age, gender, 
                                        race, and other forms of 
                                        prohibited employment 
                                        discrimination.

``SEC. 1301. INCOME FROM BACKPAY RECEIVED ON ACCOUNT OF AGE, GENDER, 
              RACE, AND OTHER FORMS OF PROHIBITED EMPLOYMENT 
              DISCRIMINATION.

    ``(a) General Rule.--If employment discrimination backpay is 
received by a taxpayer during a taxable year, the tax imposed by this 
chapter for such taxable year shall not exceed the sum of--
            ``(1) the tax which would be so imposed if--
                    ``(A) no amount of such backpay were included in 
                gross income for such year, and
                    ``(B) no deduction were allowed for such year for 
                expenses (otherwise allowable as a deduction to the 
                taxpayer for such year) in connection with making or 
                prosecuting any claim for age, gender, race, or other 
                form of employment discrimination by or on behalf of 
                the taxpayer, plus
            ``(2) the product of--
                    ``(A) the number of years in the backpay period, 
                and
                    ``(B) the amount by which the tax determined under 
                paragraph (1) would increase if the amount on which 
                such tax is determined were increased by the average 
                annual net backpay amount.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Employment discrimination backpay.--The term 
        `employment discrimination backpay' means backpay on account of 
        any claim for age, gender, race, or other form of employment 
        discrimination prohibited by Federal, State, or local law made 
        by or on behalf of the taxpayer.
            ``(2) Backpay.--The term `backpay' means amounts includible 
        in gross income--
                    ``(A) which are wages, salaries, retirement pay, or 
                other similar compensation,
                    ``(B) which are received during the taxable year by 
                the taxpayer for services performed as an employee or 
                former employee before such taxable year for the 
                taxpayer's employer or former employer, and
                    ``(C) which are ordered, recommended, or approved 
                by any Federal or State agency or which are amounts 
                received from an award in, or the settlement of, a 
                lawsuit or threatened lawsuit (in either case, 
                regardless of whether as lump sums or as periodic 
                payments).
            ``(3) Backpay period.--The term `backpay period' means the 
        period during which the services are performed to which the 
        employment discrimination backpay is attributable. If such 
        period is not equal to a whole number of taxable years, such 
        period shall be increased to next highest number of whole 
        taxable years.
            ``(4) Average annual net backpay amount.--The term `average 
        annual net backpay amount' means the amount equal to--
                    ``(A) the excess of--
                            ``(i) the amount not includible in gross 
                        income by reason of subsection (a)(1)(A), over
                            ``(ii) the amount not allowable as a 
                        deduction by reason of subsection (a)(1)(B), 
                        divided by
                    ``(B) the number of years in the backpay period.''
    (b) Clerical Amendment.--The table of parts for subchapter Q of 
chapter 1 of such Code is amended by inserting the following new item 
before the item relating to part V:

                              ``Part I. Averaging of income from 
                                        backpay awards received on 
                                        account of employment 
                                        discrimination.''
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts received in taxable years beginning after December 31, 
1985.

SEC. 6. WAIVER OF STATUTE OF LIMITATIONS.

    If refund or credit of any overpayment of tax resulting from any 
amendment made by this Act is prevented at any time before the close of 
the 1-year period beginning on the date of the enactment of this Act by 
the operation of any law or rule of law (including res judicata), 
refund or credit of such overpayment (to the extent attributable to 
such amendment) may, nevertheless, be made or allowed if claim therefor 
is filed before the close of such 1-year period.