I 

114TH CONGRESS 

1ST SESSION H. R. 2486 

To amend the Internal Revenue Code of 1986 to disallow deductions for 

the payment of compensatory and punitive damages to a government, 

and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 20, 2015 

Mr. WELCH (for himself and Mr. GUTIE ́RREZ) 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 disallow 

deductions for the payment of compensatory and punitive 

damages to a government, 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 ‘‘Stop Deducting Dam5 ages Act of 2015’’. 


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1 SEC. 2. TREATMENT OF PAYMENTS OF COMPENSATORY 

2 AND PUNITIVE DAMAGES PAID TO A GOVERN3 MENT. 

4 (a) IN GENERAL.—Section 162(f) of the Internal 

5 Revenue Code of 1986 is amended to read as follows: 

6 ‘‘(f) DAMAGES PAID TO A GOVERNMENT.— 

7 ‘‘(1) FINES AND PENALTIES.—No deduction 

8 shall be allowed under subsection (a) for any fine or 

9 similar penalty paid to a government for the viola10 tion of any law. 

11 ‘‘(2) COMPENSATORY DAMAGES.—No deduction 

12 shall be allowed under this chapter for any amount 

13 paid or incurred for compensatory damages in con14 nection with any judgment in, or settlement of, any 

15 action against a government. 

16 ‘‘(3) PUNITIVE DAMAGES.—No deduction shall 

17 be allowed under this chapter for any amount paid 

18 or incurred for punitive damages in connection with 

19 any judgment in, or settlement of, any action 

20 against a government. This paragraph shall not 

21 apply to punitive damages described in section 

22 104(c).’’. 

23 (b) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to damages paid or incurred after 

25 December 31, 2014. 


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1 SEC. 3. INCLUSION IN INCOME OF PUNITIVE DAMAGES 

2 PAID BY INSURER OR OTHERWISE. 

3 (a) IN GENERAL.—Part II of subchapter B of chap4 ter 1 of the Internal Revenue Code of 1986 is amended 

5 by adding at the end the following new section: 

6 ‘‘SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSUR7 ANCE OR OTHERWISE. 

8 ‘‘Gross income shall include any amount paid to or 

9 on behalf of a taxpayer as insurance or otherwise by rea10 son of the taxpayer’s liability (or agreement) to pay puni11 tive damages.’’. 

12 (b) REPORTING REQUIREMENTS.—Section 6041 of 

13 such Code is amended by adding at the end the following 

14 new subsection: 

15 ‘‘(h) SECTION TO APPLY TO PUNITIVE DAMAGES

16 COMPENSATION.—This section shall apply to payments by 

17 a person to or on behalf of another person as insurance 

18 or otherwise by reason of the other person’s liability (or 

19 agreement) to pay punitive damages.’’. 

20 (c) CONFORMING AMENDMENT.—The table of sec21 tions for part II of subchapter B of chapter 1 of such 

22 Code is amended by adding at the end the following new 

23 item: 

‘‘Sec. 91. Punitive damages compensated by insurance or otherwise.’’. 


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1 (d) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to damages paid or incurred after 

3 December 31, 2014. 

Æ 


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