Gains from litigation funding would be taxed at nearly 32% in latest Senate version of budget megabill
The U.S. Senate’s version of a budget megabill, known as the One Big Beautiful Bill Act, released Saturday sets a proposed tax of 31.8% on earnings from litigation finance contracts, down from 40.8% in the first version of the bill. (Photo from Shutterstock)
The U.S. Senate's version of a budget megabill, known as the One Big Beautiful Bill Act, released Saturday sets a proposed tax of 31.8% on earnings from litigation finance contracts, down from 40.8% in the first version of the bill.
The tax would be imposed on realized gains from litigation funding arrangements, according to stories by Forbes and Law360 written when the proposed tax was at 40.8%. Litigation funders would not be able to offset gains with losses, according to Bloomberg Law, which reported on the new proposed tax rate.
“This is an excise tax on capital gains or investment income, and it is unprecedented,” wrote Anthony J. Sebok, a professor at Yeshiva University’s Benjamin N. Cardozo School of Law, in the Law360 article. “Normally, a business—regardless of whether it makes money from investing in pork bellies or esoteric financial instruments—is not taxed on each transaction it makes but on its net earnings.”
The corporate tax rate is a much smaller 21%, Sebok said.
Gregg Polsky, a professor at the New York University School of Law, commented on the previous 40.8% proposal in a June 23 story by Law360. He said the proposal “could represent a sea change in the way the tax code is used.”
“We really haven’t seen the tax code be weaponized to destroy a niche industry like this before,” Polsky said. “It’s completely unprecedented.”
Paul Kong, the executive director of the International Legal Finance Association, told Bloomberg Law that the group isn’t satisfied with even the lower tax rate.
“This provision is clearly intended to target our industry and shut down corporate accountability, and fiddling with the tax rate doesn’t change that,” Kong said.
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