Civil Justice Tax Fairness Act of 2013

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. Short title This Act may be cited as the Civil Justice Tax Fairness Act of 2013 2. Exclusion from gross income for amounts received on account of certain unlawful discrimination (a) In general Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to items specifically excluded from gross income) is amended by inserting before section 140 the following new section: 139F. Amounts received on account of certain unlawful discrimination (a) Exclusion Gross income does not include amounts received by a claimant on account of a judgment or settlement (whether by suit or agreement and whether as lump sums or periodic payments) resulting from a claim of unlawful discrimination (as defined by section 62(e)). (b) Amounts covered For purposes of subsection (a), the term amounts (1) backpay or frontpay, as defined in section 1302(b), or (2) punitive damages. . (b) Clerical amendment The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting before the item relating to section 140 the following new item: Sec. 139F. Amounts received on account of certain unlawful discrimination. . (c) Effective date The amendment made by this section shall apply to amounts received in taxable years beginning after December 31, 2012. 3. Limitation on tax based on income averaging for backpay and frontpay received on account of certain unlawful employment discrimination (a) In general Part I of subchapter Q of chapter 1 of the Internal Revenue Code of 1986 (relating to income averaging) is amended by adding at the end the following new section: 1302. Income from backpay and frontpay received on account of certain unlawful employment discrimination (a) General rule If employment discrimination backpay or frontpay 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 or frontpay 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 of unlawful employment discrimination by or on behalf of the taxpayer, plus (2) the product of— (A) the number of years in the backpay period and frontpay 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 and frontpay amount. (b) Definitions For purposes of this section— (1) Employment discrimination backpay or frontpay The term employment discrimination backpay or frontpay (2) Unlawful employment discrimination The term unlawful employment discrimination unlawful discrimination (3) Backpay and frontpay The terms backpay frontpay (A) as compensation which is attributable— (i) in the case of backpay, to services performed, or that would have been performed but for a claimed violation of law, as an employee, former employee, or prospective employee before such taxable year for the taxpayer’s employer, former employer, or prospective employer, and (ii) in the case of frontpay, to employment that would have been performed but for a claimed violation of law, in a taxable year or taxable years following the taxable year, and (B) which are received on account of a judgment or settlement resulting from a claim for a violation of law. (4) Backpay period The term backpay period (5) Frontpay period The term frontpay period (6) Average annual net backpay and frontpay amount The term average annual net backpay and frontpay amount (A) the excess of— (i) employment discrimination backpay and frontpay, over (ii) the amount of deductions that would have been allowable but for subsection (a)(1)(B), divided by (B) the number of years in the backpay period and frontpay period. . (b) Clerical amendment The table of sections for part I of subchapter Q of chapter 1 of such Code is amended by inserting after section 1301 the following new item: Sec. 1302. Income from backpay and frontpay received on account of certain unlawful employment discrimination. . (c) Effective date The amendments made by this section shall apply to amounts received in taxable years beginning after December 31, 2012. 4. Income averaging for backpay and frontpay received on account of certain unlawful employment discrimination not to increase alternative minimum tax liability (a) In general Section 55(c) (3) Coordination with income averaging for amounts received on account of employment discrimination Solely for purposes of this section, section 1302 (relating to averaging of income from backpay or frontpay received on account of certain unlawful employment discrimination) shall not apply in computing the regular tax. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2012.

Summary: Civil Justice Tax Fairness Act of 2013 - Amends the Internal Revenue Code to allow: (1) an exclusion from gross income for amounts received on account of a judgment or settlement resulting from a claim of unlawful discrimination, (2) income averaging for backpay and frontpay amounts received from such claims, and (3) an exemption from the alternative minimum tax (AMT) for any tax benefit resulting from the income averaging of amounts received from an unlawful discrimination claim.