II

106TH CONGRESS

2D SESSION S. 2887

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 SENATE OF THE UNITED STATES

JULY 18, 2000

Mr. GRASSLEY (for himself, Mr. ROBB, Ms. COLLINS, and Mr. DASCHLE) introduced the following bill; which was read twice and referred to the Committee on Finance

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 Fair5 ness Act of 2000’’.
2

S 2887 IS

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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S 2887 IS

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, 805, 806, 808, or 818 of the

10 Fair Housing Act (42 U.S.C. 3604, 3605, 3606,

11 3608, or 3617).

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

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

14 12112, 12132, 12182, or 12203).

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

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

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

18 known as whistleblower protection provisions) pro19 hibiting the discharge of an employee, the discrimi20 nation against an employee, or any other form of re21 taliation or reprisal against an employee for assert22 ing rights or taking other actions permitted under

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

2 common law claims permitted under Federal, State,

3 or local law—

4 ‘‘(A) providing for the enforcement of civil

5 rights, or

6 ‘‘(B) regulating any aspect of the employ7 ment relationship, including prohibiting the dis8 charge of an employee, the discrimination

9 against an employee, or any other form of retal10 iation or reprisal against an employee for as11 serting rights or taking other actions permitted

12 by law.’’

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

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

15 is amended by inserting after the item relating to section

16 138 the following new item:

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

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

18 this section shall apply to damages received in taxable

19 years beginning after December 31, 1999.
6

S 2887 IS

1 SEC. 3. LIMITATION ON TAX BASED ON INCOME AVER2 AGING FOR BACKPAY AND FRONTPAY RE3 CEIVED ON ACCOUNT OF CERTAIN UNLAW4 FUL EMPLOYMENT DISCRIMINATION.

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

6 1 of the Internal Revenue Code of 1986 (relating to in7 come averaging) is amended by adding at the end the fol8 lowing new section:

9 ‘‘SEC. 1302. INCOME FROM BACKPAY AND FRONTPAY RE10 CEIVED ON ACCOUNT OF CERTAIN UNLAW11 FUL EMPLOYMENT DISCRIMINATION.

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

13 backpay or frontpay is received by a taxpayer during a

14 taxable year, the tax imposed by this chapter for such tax15 able year shall not exceed the sum of—

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

17 ‘‘(A) no amount of such backpay or

18 frontpay were included in gross income for such

19 year, and

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

21 year for expenses (otherwise allowable as a de22 duction to the taxpayer for such year) in con23 nection with making or prosecuting any claim

24 of unlawful employment discrimination by or on

25 behalf of the taxpayer, plus

26 ‘‘(2) the product of—
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1 ‘‘(A) the number of years in the backpay

2 period and frontpay period, and

3 ‘‘(B) the amount by which the tax deter4 mined under paragraph (1) would increase if

5 the amount on which such tax is determined

6 were increased by the average annual net back7 pay and frontpay amount.

8 ‘‘(b) DEFINITIONS.—For purposes of this section—

9 ‘‘(1) EMPLOYMENT DISCRIMINATION BACKPAY

10 OR FRONTPAY.—The term ‘employment discrimina11 tion backpay or frontpay’ means backpay or

12 frontpay receivable (whether as lump sums or peri13 odic payments) on account of a claim of unlawful

14 employment discrimination.

15 ‘‘(2) UNLAWFUL EMPLOYMENT DISCRIMINA16 TION.—The term ‘unlawful employment discrimina17 tion’ has the meaning provided the term ‘unlawful

18 discrimination’ in section 139(b).

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

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

21 gross income in the taxable year—

22 ‘‘(A) as compensation which is

23 attributable—

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

25 performed, or that would have been per-
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1 formed but for a claimed violation of law,

2 as an employee, former employee, or pro3 spective employee before such taxable year

4 for the taxpayer’s employer, former em5 ployer, or prospective employer; and

6 ‘‘(ii) in the case of frontpay, to em7 ployment that would have been performed

8 but for a claimed violation of law, in a tax9 able year or taxable years following the

10 taxable year; and

11 ‘‘(B) which are—

12 ‘‘(i) ordered, recommended, or ap13 proved by any governmental entity to sat14 isfy a claim for a violation of law, or

15 ‘‘(ii) received from the settlement of

16 such a claim.

17 ‘‘(4) BACKPAY PERIOD.—The term ‘backpay pe18 riod’ means the period during which services are

19 performed (or would have been performed) to which

20 backpay is attributable. If such period is not equal

21 to a whole number of taxable years, such period

22 shall be increased to the next highest number of

23 whole taxable years.

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

25 period’ means the period of foregone employment to
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1 which frontpay is attributable. If such period is not

2 equal to a whole number of taxable years, such pe3 riod shall be increased to the next highest number

4 of whole taxable years.

5 ‘‘(6) AVERAGE ANNUAL NET BACKPAY AND

6 FRONTPAY AMOUNT.—The term ‘average annual net

7 backpay and frontpay amount’ means the amount

8 equal to—

9 ‘‘(A) the excess of—

10 ‘‘(i) employment discrimination back11 pay and frontpay, over

12 ‘‘(ii) the amount of deductions that

13 would have been allowable but for sub14 section (a)(1)(B), divided by

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

16 period and frontpay period.’’

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

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

19 amended by inserting after section 1301 the following new

20 item:

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

of certain unlawful employment discrimination.’’

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

22 this section shall apply to amounts received in taxable

23 years beginning after December 31, 1999.
10

S 2887 IS

1 SEC. 3. INCOME AVERAGING FOR BACKPAY AND FRONTPAY

2 RECEIVED ON ACCOUNT OF CERTAIN UNLAW3 FUL EMPLOYMENT DISCRIMINATION NOT TO

4 INCREASE ALTERNATIVE MINIMUM TAX LI5 ABILITY.

6 (a) IN GENERAL.—Section 55(c) of the Internal Rev7 enue Code of 1986 (defining regular tax) is amended by

8 redesignating paragraph (2) as paragraph (3) and by in9 serting after paragraph (1) the following:

10 ‘‘(2) COORDINATION WITH INCOME AVERAGING

11 FOR AMOUNTS RECEIVED ON ACCOUNT OF EMPLOY12 MENT DISCRIMINATION.—Solely for purposes of this

13 section, section 1302 (relating to averaging of in14 come from backpay or frontpay received on account

15 of certain unlawful employment discrimination) shall

16 not apply in computing the regular tax.’’

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

18 this section shall apply to taxable years beginning after

19 December 31, 1999.

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