Washington, D.C. – U.S. Senator Catherine Cortez Masto (D-Nev.) introduced the End Double Taxation of Successful Consumer Claims Act to protect American consumers’ right to sue corporations for fraud. The legislation will help ensure that consumers who win fraud causes are not liable for taxes on funds awarded to their attorney.
“Consumer fraud, abusive debt collection and credit reporting errors are plaguing consumers as a result of the COVID-19 pandemic. No consumer should be deterred from suing fraudulent and predatory corporations because of a tax penalty that could burden them if they win. This bill will end the practice of requiring consumers who win their cases to pay income taxes on the funds that courts award them to reimburse their legal expenses. I’ll keep fighting for legislation that protects consumers and encourages Nevadans to seek justice for overcharges, abuse and other harmful and fraudulent acts by corporations.”
In addition to Senator Cortez Masto, this legislation is also cosponsored by Senators Sherrod Brown (D-Ohio), Richard Blumenthal (D-Conn.), Chris Van Hollen (D-Md.) and Ed Markey (D-Mass.).
BACKGROUND:
A provision in the U.S. tax code, which was made worse by the 2017 Republican tax bill, unfairly taxes consumers who sue corporations or companies for abuse or fraud on the legal judgments they win. Plaintiffs who sue companies for consumer fraud and win their cases are currently awarded money in damages and additional money to pay attorneys’ fees. But the tax code makes plaintiffs pay income tax on the full amount awarded by a court, even though the plaintiffs personally receive only damages, not the attorney’s fees. Many consumer fraud cases award only small amounts in damages, and if the consumer is taxed for the total amount, the taxes they owe could end up exceeding the amount they are personally awarded. The End Double Taxation of Successful Consumer Claims Act will ensure that consumers are not liable to pay federal income taxes on money awarded to pay attorneys’ fees. The sponsors of this bill hope to include it in a future pandemic relief effort to ensure any victims of unfair or deceptive practices are able to have access to the court system to obtain redress.
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