I

107TH CONGRESS

1ST SESSION H. R. 840

To amend the Internal Revenue Code of 1986 to exclude from gross income

amounts received on account of claims based on certain unlawful discrimination and to allow income averaging for backpay and frontpay

awards received on account of such claims, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 1, 2001

Ms. PRYCE of Ohio (for herself, Mr. WATTS of Oklahoma, Mrs. JOHNSON of

Connecticut, Mr. FOLEY, Mr. LEWIS of Georgia, Mr. MATSUI, and Mr.

BECERRA) introduced the following bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to exclude

from gross income amounts received on account of claims

based on certain unlawful discrimination and to allow

income averaging for backpay and frontpay awards received on account of such claims, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Civil Rights Tax Relief

5 Act of 2001’’.
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1 SEC. 2. EXCLUSION FROM GROSS INCOME FOR AMOUNTS

2 RECEIVED ON ACCOUNT OF CERTAIN UNLAW3 FUL DISCRIMINATION.

4 (a) IN GENERAL.—Part III of subchapter B of chap5 ter 1 of the Internal Revenue Code of 1986 (relating to

6 items specifically excluded from gross income) is amended

7 by redesignating section 139 as section 140 and by insert8 ing after section 138 the following new section:

9 ‘‘SEC. 139. AMOUNTS RECEIVED ON ACCOUNT OF CERTAIN

10 UNLAWFUL DISCRIMINATION.

11 ‘‘(a) IN GENERAL.—

12 ‘‘(1) EXCLUSION.—Gross income does not in13 clude amounts received by a claimant (whether by

14 suit or agreement and whether as lump sums or

15 periodic payments) on account of a claim of unlawful

16 discrimination.

17 ‘‘(2) AMOUNTS COVERED.—For purposes of

18 paragraph (1), the term ‘amounts’ does not

19 include—

20 ‘‘(A) backpay or frontpay, as defined in

21 section 1302(b), or

22 ‘‘(B) punitive damages.

23 ‘‘(b) UNLAWFUL DISCRIMINATION DEFINED.—For

24 purposes of this section, the term ‘unlawful discrimination’

25 means an act that is unlawful under any of the following:
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1 ‘‘(1) Section 302 of the Civil Rights Act of

2 1991 (2 U.S.C. 1202).

3 ‘‘(2) Section 201, 202, 203, 204, 205, 206, or

4 207 of the Congressional Accountability Act of 1995

5 (2 U.S.C. 1311, 1312, 1313, 1314, 1315, 1316, or

6 1317).

7 ‘‘(3) The Fair Labor Standards Act of 1938

8 (29 U.S.C. 201 et seq.).

9 ‘‘(4) Section 4 or 15 of the Age Discrimination

10 in Employment Act of 1967 (29 U.S.C. 623 or

11 633a).

12 ‘‘(5) Section 501 or 504 of the Rehabilitation

13 Act of 1973 (29 U.S.C. 791 or 794).

14 ‘‘(6) Section 510 of the Employee Retirement

15 Income Security Act of 1974 (29 U.S.C. 1140).

16 ‘‘(7) Title IX of the Education Amendments of

17 1972 (29 U.S.C. 1681 et seq.).

18 ‘‘(8) The Employee Polygraph Protection Act of

19 1988 (29 U.S.C. 201 et seq.).

20 ‘‘(9) The Worker Adjustment and Retraining

21 Notification Act (29 U.S.C. 2102 et seq.).

22 ‘‘(10) Section 105 of the Family and Medical

23 Leave Act of 1993 (29 U.S.C. 2615).
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1 ‘‘(11) Chapter 43 of title 38, United States

2 Code (relating to employment and reemployment

3 rights of members of the uniformed services).

4 ‘‘(12) Section 1977, 1979, or 1980 of the Re5 vised Statutes (42 U.S.C. 1981, 1983, or 1985).

6 ‘‘(13) Section 703, 704, or 717 of the Civil

7 Rights Act of 1964 (42 U.S.C. 2000e–2, 2000e–3,

8 or 2000e–16).

9 ‘‘(14) Section 804 or 805 of the Fair Housing

10 Act (42 U.S.C. 3604 or 3605).

11 ‘‘(15) Section 102, 202, 302, or 503 of the

12 Americans with Disabilities Act of 1990 (42 U.S.C.

13 12112, 12132, 12182, or 12203).

14 ‘‘(16) Section 40302 of the Violence Against

15 Women Act of 1994 (42 U.S.C. 13981).

16 ‘‘(17) Any provision of Federal law (popularly

17 known as whistleblower protection provisions) pro18 hibiting the discharge of an employee, the discrimi19 nation against an employee, or any other form of re20 taliation or reprisal against an employee for assert21 ing rights or taking other actions permitted under

22 Federal law.

23 ‘‘(18) Any provision of State or local law, or

24 common law claims permitted under Federal, State,

25 or local law, providing for the enforcement of civil
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1 rights or prohibiting the discharge of an employee,

2 the discrimination against an employee, or any other

3 form of retaliation or reprisal against an employee

4 for asserting rights or taking other actions per5 mitted by law.’’.

6 (b) CLERICAL AMENDMENT.—The table of sections

7 for part III of subchapter B of chapter 1 of such Code

8 is amended by inserting after the item relating to section

9 138 the following new item:

‘‘Sec. 139. Amounts received on account of certain unlawful discrimination.’’

10 (c) EFFECTIVE DATE.—The amendment made by

11 this section shall apply to damages received in taxable

12 years beginning after December 31, 2000.

13 SEC. 3. LIMITATION ON TAX BASED ON INCOME AVER14 AGING FOR BACKPAY AND FRONTPAY RE15 CEIVED ON ACCOUNT OF CERTAIN UNLAW16 FUL EMPLOYMENT DISCRIMINATION.

17 (a) IN GENERAL.—Part I of subchapter Q of chapter

18 1 of the Internal Revenue Code of 1986 (relating to in19 come averaging) is amended by adding at the end the fol20 lowing new section:
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1 ‘‘SEC. 1302. INCOME FROM BACKPAY AND FRONTPAY RE2 CEIVED ON ACCOUNT OF CERTAIN UNLAW3 FUL EMPLOYMENT DISCRIMINATION.

4 ‘‘(a) GENERAL RULE.—If employment discrimination

5 backpay or frontpay is received by a taxpayer during a

6 taxable year, the tax imposed by this chapter for such tax7 able year shall not exceed the sum of—

8 ‘‘(1) the tax which would be so imposed if—

9 ‘‘(A) no amount of such backpay or

10 frontpay were included in gross income for such

11 year, and

12 ‘‘(B) no deduction were allowed for such

13 year for expenses (otherwise allowable as a de14 duction to the taxpayer for such year) in con15 nection with making or prosecuting any claim

16 of unlawful employment discrimination by or on

17 behalf of the taxpayer, plus

18 ‘‘(2) the product of—

19 ‘‘(A) the number of years in the backpay

20 period and frontpay period, and

21 ‘‘(B) the amount by which the tax deter22 mined under paragraph (1) would increase if

23 the amount on which such tax is determined

24 were increased by the average annual net back25 pay and frontpay amount.

26 ‘‘(b) DEFINITIONS.—For purposes of this section—
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1 ‘‘(1) EMPLOYMENT DISCRIMINATION BACKPAY

2 OR FRONTPAY.—The term ‘employment discrimina3 tion backpay or frontpay’ means backpay or

4 frontpay receivable (whether as lump sums or peri5 odic payments) on account of a claim of unlawful

6 employment discrimination.

7 ‘‘(2) UNLAWFUL EMPLOYMENT DISCRIMINA8 TION.—The term ‘unlawful employment discrimina9 tion’ has the meaning provided the term ‘unlawful

10 discrimination’ in section 139(b).

11 ‘‘(3) BACKPAY AND FRONTPAY.—The terms

12 ‘backpay’ and ‘frontpay’ mean amounts includible in

13 gross income in the taxable year—

14 ‘‘(A) as compensation which is

15 attributable—

16 ‘‘(i) in the case of backpay, to services

17 performed, or that would have been per18 formed but for a claimed violation of law,

19 as an employee, former employee, or pro20 spective employee before such taxable year

21 for the taxpayer’s employer, former em22 ployer, or prospective employer; and

23 ‘‘(ii) in the case of frontpay, to em24 ployment that would have been performed

25 but for a claimed violation of law, in a tax-
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1 able year or taxable years following the

2 taxable year; and

3 ‘‘(B) which are—

4 ‘‘(i) ordered, recommended, or ap5 proved by any governmental entity to sat6 isfy a claim for a violation of law, or

7 ‘‘(ii) received from the settlement of

8 such a claim.

9 ‘‘(4) BACKPAY PERIOD.—The term ‘backpay pe10 riod’ means the period during which services are

11 performed (or would have been performed) to which

12 backpay is attributable. If such period is not equal

13 to a whole number of taxable years, such period

14 shall be increased to the next highest number of

15 whole taxable years.

16 ‘‘(5) FRONTPAY PERIOD.—The term ‘frontpay

17 period’ means the period of foregone employment to

18 which frontpay is attributable. If such period is not

19 equal to a whole number of taxable years, such pe20 riod shall be increased to the next highest number

21 of whole taxable years.

22 ‘‘(6) AVERAGE ANNUAL NET BACKPAY AND

23 FRONTPAY AMOUNT.—The term ‘average annual net

24 backpay and frontpay amount’ means the amount

25 equal to—
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1 ‘‘(A) the excess of—

2 ‘‘(i) employment discrimination back3 pay and frontpay, over

4 ‘‘(ii) the amount of deductions that

5 would have been allowable but for sub6 section (a)(1)(B), divided by

7 ‘‘(B) the number of years in the backpay

8 period and frontpay period.’’.

9 (b) CLERICAL AMENDMENT.—The table of sections

10 for part I of subchapter Q of chapter 1 of such Code is

11 amended by inserting after section 1301 the following new

12 item:

‘‘Sec. 1302. Income from backpay or frontpay received on account

of certain unlawful employment discrimination.’’

13 (c) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to amounts received in taxable

15 years beginning after December 31, 2000.

16 SEC. 3. INCOME AVERAGING FOR BACKPAY AND FRONTPAY

17 RECEIVED ON ACCOUNT OF CERTAIN UNLAW18 FUL EMPLOYMENT DISCRIMINATION NOT TO

19 INCREASE ALTERNATIVE MINIMUM TAX LI20 ABILITY.

21 (a) IN GENERAL.—Section 55(c) of the Internal Rev22 enue Code of 1986 (defining regular tax) is amended by

23 redesignating paragraph (2) as paragraph (3) and by in24 serting after paragraph (1) the following:
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1 ‘‘(2) COORDINATION WITH INCOME AVERAGING

2 FOR AMOUNTS RECEIVED ON ACCOUNT OF EMPLOY3 MENT DISCRIMINATION.—Solely for purposes of this

4 section, section 1302 (relating to averaging of in5 come from backpay or frontpay received on account

6 of certain unlawful employment discrimination) shall

7 not apply in computing the regular tax.’’.

8 (b) EFFECTIVE DATE.—The amendment made by

9 this section shall apply to taxable years beginning after

10 December 31, 2000.

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