Title: A bill to amend the Internal Revenue Code of 1986 to disallow any deduction for punitive damages, and for other purposes.
Policy area: Taxation

Summary:

This bill amends the Internal Revenue Code to: (1) deny a tax deduction for any amount paid or incurred for punitive damages in connection with any judgment in, or settlement of, any legal action between private parties; and (2) include any amount paid as punitive damages in gross income for income tax purposes.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[S. 2115 Introduced in Senate (IS)]

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115th CONGRESS
  1st Session
                                S. 2115

 To amend the Internal Revenue Code of 1986 to disallow any deduction 
             for punitive damages, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            November 9, 2017

Mr. Leahy (for himself, Mr. Blumenthal, Mr. Reed, Mrs. Gillibrand, and 
  Ms. Hassan) 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 disallow any deduction 
             for punitive damages, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.

    (a) Disallowance of Deduction.--
            (1) In general.--Section 162(g) of the Internal Revenue 
        Code of 1986 is amended--
                    (A) by redesignating paragraphs (1) and (2) as 
                subparagraphs (A) and (B), respectively;
                    (B) by striking ``If'' and inserting:
            ``(1) Treble damages.--If''; and
                    (C) by adding at the end the following new 
                paragraph:
            ``(2) 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 between private parties.''.
            (2) Conforming amendment.--The heading for section 162(g) 
        of such Code is amended by inserting ``or Punitive Damages'' 
        after ``Laws''.
    (b) Inclusion in Income of Punitive Damages Paid by Insurer or 
Otherwise.--
            (1) In general.--Part II of subchapter B of chapter 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 INSURANCE OR OTHERWISE.

    ``Gross income shall include any amount paid to or on behalf of a 
taxpayer as insurance or otherwise by reason of the taxpayer's 
liability (or agreement) to pay punitive damages.''.
            (2) 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.''.
            (3) Conforming amendment.--The table of sections 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.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to damages paid or incurred on or after the date of the enactment 
of this Act.
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