I 
113TH CONGRESS 
1ST SESSION H. R. 3445 
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 
OCTOBER 30, 2013 
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. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Stop Deducting Dam-
ages Act of 2013’’. 
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SEC. 2. TREATMENT OF PAYMENTS OF COMPENSATORY 
AND PUNITIVE DAMAGES PAID TO A GOVERN-
MENT. 
(a) IN GENERAL.—Section 162(f) of the Internal 
Revenue Code of 1986 is amended to read as follows: 
‘‘(f) DAMAGES PAID TO A GOVERNMENT.— 
‘‘(1) FINES
AND
PENALTIES.—No deduction 
shall be allowed under subsection (a) for any fine or 
similar penalty paid to a government for the viola-
tion of any law. 
‘‘(2) COMPENSATORY DAMAGES.—No deduction 
shall be allowed under this chapter for any amount 
paid or incurred for compensatory damages in con-
nection with any judgment in, or settlement of, any 
action against a government. 
‘‘(3) PUNITIVE DAMAGES.—No deduction shall 
be allowed under this chapter for any amount paid 
or incurred for punitive damages in connection with 
any judgment in, or settlement of, any action 
against a government. This paragraph shall not 
apply to punitive damages described in section 
104(c).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to damages paid or incurred after 
October 30, 2013. 
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SEC. 3. INCLUSION IN INCOME OF PUNITIVE DAMAGES 
PAID BY INSURER OR OTHERWISE. 
(a) IN GENERAL.—Part II of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 is amended 
by adding at the end the following new section: 
‘‘SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSUR-
ANCE OR OTHERWISE. 
‘‘Gross income shall include any amount paid to or 
on behalf of a taxpayer as insurance or otherwise by rea-
son of the taxpayer’s liability (or agreement) to pay puni-
tive damages.’’. 
(b) REPORTING REQUIREMENTS.—Section 6041 of 
such Code is amended by adding at the end the following 
new subsection: 
‘‘(h) SECTION TO APPLY TO PUNITIVE DAMAGES 
COMPENSATION.—This section shall apply to payments by 
a person to or on behalf of another person as insurance 
or otherwise by reason of the other person’s liability (or 
agreement) to pay punitive damages.’’. 
(c) CONFORMING AMENDMENT.—The table of sec-
tions for part II of subchapter B of chapter 1 of such 
Code is amended by adding at the end the following new 
item: 
‘‘Sec. 91. Punitive damages compensated by insurance or otherwise.’’. 
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(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to damages paid or incurred after 
October 30, 2013. 
Æ 
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