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S 794

112th CONGRESS
1st Session

S. 794

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

April 12, 2011

Mr. LEAHY (for himself and Mr. WHITEHOUSE) 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. SHORT TITLE.

    This Act may be cited as the `Protecting American Taxpayers from Misconduct Act'.

SEC. 2. 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. This paragraph shall not apply to punitive damages described in section 104(c).'.

      (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.

END