,,ii #aaith ,,congress #ast ,session ,s4 #ahba ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,may #bj1 #bjbe ,mr4 ,tillis introduced the following bill2 which was read twice and referred to the ,committee on ,finance ,a ,,bill ,to amend the ,internal ,revenue ,code of #aihf to establish a tax on income from litigation which is received by third-party entities that provided financing for such litigation4 #a4 ,short title ,this ,act may be cited as the ,tackling ,predatory ,litigation ,funding ,act4 #b4 ,litigation financing 7a7 ,in general ,subtitle ,d of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new chapter3 #ej;,b ,litigation ,financing ,sec4 #ejjj;,e-#a4 ,tax imposed4 ,sec4 #ejjj;,e-#b4 ,definitions4 ,sec4 #ejjj;,e-#c4 ,special rules4 #ejjj;,e-#a4 ,tax imposed 7a7 ,in general ,a tax is hereby imposed for each taxable year in an amount equal to the applicable percentage of any qualified litigation proceeds received by a covered party4 7b7 ,applicable percentage ,for purposes of subsection 7a71 with respect to any taxable year1 the applicable percentage shall be the amount 7expressed as a percentage7 equal to the sum of-- 7#a7 the highest rate of tax imposed by section #a for such taxable year1 plus 7#b7 #c4h percentage points4 7c7 ,application of tax for pass-,thru entities ,in the case of a covered party that is a partnership1 ,s corporation1 or other pass-thru entity1 the tax imposed under subsection 7a7 shall be applied at the entity level4 #ejjj;,e-#b4 ,definitions ,in this chapter-- 7#a7 ,civil action 7,a7 ,in general ,the term civil action means any civil action1 administrative proceeding1 claim1 or cause of action4 7,b7 ,multiple actions ,the term civil action may1 unless otherwise indicated1 include more than #a civil action4 7#b7 ,covered party 7,a7 ,in general ,the term covered party means1 with respect to any civil action1 any third party 7including an individual1 corporation1 partnership1 or sovereign wealth fund7 to such action which-- 7i7 receives funds pursuant to a litigation financing agreement1 and 7ii7 is not an attorney representing a party to such civil action4 7,b7 ,inclusion of domestic and foreign entities ,subparagraph 7,a7 shall apply to any third party without regard to whether such party is created or organized in the ,united ,states or under the law of the ,united ,states or of any ,state4 7#c7 ,litigation financing agreement 7,a7 ,in general ,the term litigation financing agreement means1 with respect to any civil action1 a written agreement-- 7i7 whereby a third party agrees to provide funds to one of the named parties or any law firm affiliated with such civil action1 and 7ii7 which creates a direct or collateralized interest in the proceeds of such action 7by settlement1 verdict1 judgment or otherwise7 which-- 7,i7 is based1 in whole or part1 on a funding-based obligation to-- 7aa7 such civil action1 7bb7 the appearing counsel1 7cc7 any contractual co-counsel1 or 7dd7 the law firm of such counsel or co-counsel1 and 7,,ii7 is executed with-- 7aa7 any attorney representing a party to such civil action1 7bb7 any co-counsel in the litigation with a contingent fee interest in the representation of such party1 7cc7 any third party that has a collateral-based interest in the contingency fees of the counsel or co-counsel firm which is related1 in whole or part1 to the fees derived from representing such party1 or 7dd7 any named party in such civil action4 7,b7 ,substantially similar agreements ,the term litigation financing agreement shall include any contract 7including any option1 forward contract1 futures contract1 short position1 swap1 or similar contract7 or other agreement which1 as determined by the ,secretary1 is substantially similar to an agreement described in subparagraph 7,a74 7,c7 ,exceptions ,the term litigation financing agreement shall not include any agreement-- 7i7 under which the total amount of funds described in subparagraph 7,a77i7 with respect to an individual civil action is less than #aj1jjj1 or 7ii7 in which the third party described in subparagraph 7,a7-- 7,i7 has a right to receive proceeds which are derived from1 or pursuant to1 such agreement that are limited to-- 7aa7 repayment of the principal of a loan1 7bb7 repayment of the principal of a loan plus any interest on such loan1 provided that the rate of interest does not exceed the greater of-- 7,,aa7 #g percent1 or 7,,bb7 a rate equal to twice the average annual yield on #cj-year ,united ,states ,treasury securities 7as determined for the year preceding the date on which such agreement was executed71 or 7cc7 reimbursement of attorney's fees1 or 7,,ii7 bears a relationship described in section #bfg7;b7 to the named party receiving the payment described in subparagraph 7,a77i74 7#d7 ,qualified litigation proceeds 7,a7 ,in general ,the term qualified litigation proceeds means1 with respect to any taxable year1 an amount equal to the realized gains1 net income1 or other profit received by a covered party during such taxable year which is derived from1 or pursuant to1 any litigation financing agreement4 7,b7 ,anti-netting ,any gains1 income1 or profit described in subparagraph 7,a7 shall not be reduced or offset by any ordinary or capital loss in the taxable year4 7,c7 ,prohibition on exclusion of certain amounts ,in determining the amount of realized gain under subparagraph 7,a71 amounts described in section #ajd7;a77#b7 and #hib7;a77#a7 shall not be excluded4 #ejjj;,e-#c4 ,special rules 7a7 ,withholding of tax on litigation proceeds ,any applicable person having the control1 receipt1 or custody of any proceeds from a civil action 7by settlement1 judgment1 or otherwise7 with respect to which such person had entered into a litigation financing agreement shall deduct and withhold from such proceeds a tax equal to #ej percent of the applicable percentage 7as determined under section #ejjj;,e-#a7;b77 of any payments which are required to be made to a third party pursuant to such agreement4 7b7 ,applicable person ,for purposes of this section1 the term applicable person means any person which-- 7#a7 is a named party in a civil action or a law firm affiliated with such civil action1 and 7#b7 has entered into a litigation financing agreement with respect to such civil action4 7c7 ,application of withholding provisions 7#a7 ,liability for withheld tax ,every person required to deduct and withhold any tax under this chapter is hereby made liable for such tax and is hereby indemnified against the claims and demands of any person for the amount of any payments made in accordance with the provisions of this chapter4 7#b7 ,withheld tax as credit to recipient of qualified litigation proceeds ,qualified litigation proceeds on which any tax is required to be withheld at the source under this chapter shall be included in the return of the recipient of such proceeds1 but any amount of tax so withheld shall be credited against the amount of tax as computed in such return4 7#c7 ,tax paid by recipient of qualified litigation proceeds ,if-- 7,a7 any person1 in violation of the provisions of this chapter1 fails to deduct and withhold any tax under this chapter1 and 7,b7 thereafter the tax against which such tax may be credited is paid1 the tax so required to be deducted and withheld shall not be collected from such person1 but this paragraph shall in no case relieve such person from liability for interest or any penalties or additions to the tax otherwise applicable in respect of such failure to deduct and withhold4 7#d7 ,refunds and credits with respect to withheld tax ,where there has been an overpayment of tax under this chapter1 any refund or credit made under chapter #fe shall be made to the withholding agent unless the amount of such tax was actually withheld by the withholding agent4 4 7b7 ,exclusion from definition of capital asset ,section #abba7;a7 of the ,internal ,revenue ,code of #aihf is amended-- 7#a7 in paragraph 7#g71 by striking or at the end1 7#b7 in paragraph 7#h71 by striking the period at the end and inserting 2 or1 and 7#c7 by adding at the end the following new paragraph3 7#i7 any financial arrangement created by1 or any proceeds derived from1 a litigation financing agreement 7as defined under section #ejjj;,e-#b74 4 7c7 ,removal from gross income ,part ,,iii of subchapter ,b of chapter #a of the ,internal ,revenue ,code of #aihf is amended by inserting after section #aci;,i the following new section3 #aci;,j4 ,qualified litigation proceeds ,gross income shall not include any qualified litigation proceeds 7as defined in section #ejjj;,e-#b74 4 7d7 ,clerical amendments 7#a7 ,section #ggja7;a77#af7 of the ,internal ,revenue ,code of #aihf is amended by inserting #ejjj;,e-#c7;c77#a71 before #adda4 7#b7 ,the table of chapters for subtitle ,d of the ,internal ,revenue ,code of #aihf is amended by inserting after the item relating to chapter #ej;,a the following new item3 ,chapter #ej;,b--,litigation ,financing 4 7#c7 ,the table of sections for part ,,iii of subchapter ,b of chapter #a of such ,code is amended by inserting after the item relating to section #aci;,i the following new item3 ,sec4 #aci;,j4 ,qualified litigation proceeds4 4 7e7 ,effective date ,the amendments made by this section shall apply to taxable years beginning after ,december #ca1 #bjbe4