I 

110TH CONGRESS 

1ST SESSION H. R. 1540 

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 15, 2007 

Mr. LEWIS of Georgia (for himself, Ms. PRYCE of Ohio, Mr. LEVIN, Mr. 

RAMSTAD, Mr. BECERRA, and Mr. ENGLISH of Pennsylvania) 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 2007’’. 


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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 inserting after section 139A the following new section: 

8 ‘‘SEC. 139B. AMOUNTS RECEIVED ON ACCOUNT OF CERTAIN 

9 UNLAWFUL DISCRIMINATION. 

10 ‘‘(a) EXCLUSION.—Gross income does not include 

11 amounts received by a claimant (whether by suit or agree12 ment and whether as lump sums or periodic payments) 

13 on account of a claim of unlawful discrimination (as de14 fined by section 62(e)). 

15 ‘‘(b) AMOUNTS COVERED.—For purposes of sub16 section (a), the term ‘amounts’ does not include— 

17 ‘‘(1) backpay or frontpay, as defined in section 

18 1302(b), or 

19 ‘‘(2) punitive damages.’’. 

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

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

22 is amended by inserting after the item relating to section 

23 139A the following: 

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


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

2 this section shall apply to amounts received in taxable 

3 years beginning after December 31, 2006. 

4 SEC. 3. LIMITATION ON TAX BASED ON INCOME AVER5 AGING FOR BACKPAY AND FRONTPAY RE6 CEIVED ON ACCOUNT OF CERTAIN UNLAW7 FUL EMPLOYMENT DISCRIMINATION. 

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

9 1 of the Internal Revenue Code of 1986 (relating to in10 come averaging) is amended by adding at the end the fol11 lowing new section: 

12 ‘‘SEC. 1302. INCOME FROM BACKPAY AND FRONTPAY RE13 CEIVED ON ACCOUNT OF CERTAIN UNLAW14 FUL EMPLOYMENT DISCRIMINATION. 

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

16 backpay or frontpay is received by a taxpayer during a 

17 taxable year, the tax imposed by this chapter for such tax18 able year shall not exceed the sum of— 

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

20 ‘‘(A) no amount of such backpay or 

21 frontpay were included in gross income for such 

22 year, and 

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

24 year for expenses (otherwise allowable as a de25 duction to the taxpayer for such year) in conVerDate Aug 31 2005 18:09 Mar 16, 2007 Jkt 059196 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H1540.IH H1540

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1 nection with making or prosecuting any claim 

2 of unlawful employment discrimination by or on 

3 behalf of the taxpayer, plus 

4 ‘‘(2) the product of— 

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

6 period and frontpay period, and 

7 ‘‘(B) the amount by which the tax deter8 mined under paragraph (1) would increase if 

9 the amount on which such tax is determined 

10 were increased by the average annual net back11 pay and frontpay amount. 

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

13 ‘‘(1) EMPLOYMENT DISCRIMINATION BACKPAY

14 OR FRONTPAY.—The term ‘employment discrimina15 tion backpay or frontpay’ means backpay or 

16 frontpay receivable (whether as lump sums or peri17 odic payments) on account of a claim of unlawful 

18 employment discrimination. 

19 ‘‘(2) UNLAWFUL EMPLOYMENT DISCRIMINA20 TION.—The term ‘unlawful employment discrimina21 tion’ has the meaning provided the term ‘unlawful 

22 discrimination’ in section 62(e). 

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

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

25 gross income in the taxable year— 


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1 ‘‘(A) as compensation which is attrib2 utable— 

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

4 performed, or that would have been per5 formed but for a claimed violation of law, 

6 as an employee, former employee, or pro7 spective employee before such taxable year 

8 for the taxpayer’s employer, former em9 ployer, or prospective employer, and 

10 ‘‘(ii) in the case of frontpay, to em11 ployment that would have been performed 

12 but for a claimed violation of law, in a tax13 able year or taxable years following the 

14 taxable year; and 

15 ‘‘(B) which are— 

16 ‘‘(i) ordered, recommended, or ap17 proved by any governmental entity to sat18 isfy a claim for a violation of law, or 

19 ‘‘(ii) received from the settlement of 

20 such a claim. 

21 ‘‘(4) BACKPAY PERIOD.—The term ‘backpay pe22 riod’ means the period during which services are 

23 performed (or would have been performed) to which 

24 backpay is attributable. If such period is not equal 

25 to a whole number of taxable years, such period 


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1 shall be increased to the next highest number of 

2 whole taxable years. 

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

4 period’ means the period of foregone employment to 

5 which frontpay is attributable. If such period is not 

6 equal to a whole number of taxable years, such pe7 riod shall be increased to the next highest number 

8 of whole taxable years. 

9 ‘‘(6) AVERAGE ANNUAL NET BACKPAY AND

10 FRONTPAY AMOUNT.—The term ‘average annual net 

11 backpay and frontpay amount’ means the amount 

12 equal to— 

13 ‘‘(A) the excess of— 

14 ‘‘(i) employment discrimination back15 pay and frontpay, over 

16 ‘‘(ii) the amount of deductions that 

17 would have been allowable but for sub18 section (a)(1)(B), divided by 

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

20 period and frontpay period.’’. 

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

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

23 amended by inserting after section 1301 the following new 

24 item: 

‘‘Sec. 1302. Income from backpay and frontpay received on account of certain 

unlawful employment discrimination.’’. 


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

2 this section shall apply to amounts received in taxable 

3 years beginning after December 31, 2006. 

4 SEC. 4. INCOME AVERAGING FOR BACKPAY AND FRONTPAY 

5 RECEIVED ON ACCOUNT OF CERTAIN UNLAW6 FUL EMPLOYMENT DISCRIMINATION NOT TO 

7 INCREASE ALTERNATIVE MINIMUM TAX LI8 ABILITY. 

9 (a) IN GENERAL.—Section 55(c) of the Internal Rev10 enue Code of 1986 (defining regular tax) is amended by 

11 redesignating paragraph (2) as paragraph (3) and by in12 serting after paragraph (1) the following: 

13 ‘‘(2) COORDINATION WITH INCOME AVERAGING

14 FOR AMOUNTS RECEIVED ON ACCOUNT OF EMPLOY15 MENT DISCRIMINATION.—Solely for purposes of this 

16 section, section 1302 (relating to averaging of in17 come from backpay or frontpay received on account 

18 of certain unlawful employment discrimination) shall 

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

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

21 this section shall apply to taxable years beginning after 

22 December 31, 2006. 

Æ 


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