Tackling Predatory Litigation Funding Act
Sponsored By: Representative Hern (OK)
Introduced
Summary
A new tax and mandatory withholding on third-party litigation funding. The bill would create a tax on profits that third-party funders collect from litigation financing and require parties or affiliated law firms to withhold part of settlement or judgment payouts when funding is involved.
Show full summary
- Third-party funders would face a tax on "qualified litigation proceeds" equal to the top individual tax rate plus 3.8 percentage points. Pass-through entities like partnerships and S corporations would pay the tax at the entity level.
- Named parties and affiliated law firms would need to withhold 50% of that tax amount from payments to a funder. Withheld amounts would be a credit to the funder's tax return and failure to withhold would expose payers to penalties.
- The bill carves out small or limited-repayment deals. It also amends tax rules to exclude litigation-financing arrangements from the capital-asset definition and adds a special rule treating qualified litigation proceeds outside gross income.
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Bill Overview
Analyzed Economic Effects
1 provisions identified: 0 benefits, 0 costs, 1 mixed.
New tax and withholding for litigation funders
If enacted, third‑party lawsuit funders would face a special tax on profits from financing cases. The rate would equal the top individual income tax rate for the year plus 3.8 percentage points, applied at the entity level for pass‑throughs. You could not offset gains with losses from other deals in the same year. Named parties or their law firms would have to withhold half of that rate from payments to funders. Amounts withheld would count as a credit on the funder’s return. Those profits would not count as gross income, and rights under these deals would not be treated as capital assets. Very small deals under $10,000 and some repayment‑only or related‑party loans would be excluded; domestic and foreign funders would be covered. These rules would start for tax years beginning after December 31, 2025.
Sponsors & CoSponsors
Sponsor
Hern (OK)
OK • R
Cosponsors
Feenstra
IA • R
Sponsored 5/20/2025
Davidson
OH • R
Sponsored 5/29/2025
Kelly (PA)
PA • R
Sponsored 5/29/2025
Rep. Malliotakis, Nicole [R-NY-11]
NY • R
Sponsored 6/2/2025
Rep. Hinson, Ashley [R-IA-2]
IA • R
Sponsored 6/2/2025
Rep. Tenney, Claudia [R-NY-24]
NY • R
Sponsored 6/2/2025
LaHood
IL • R
Sponsored 6/5/2025
Rep. Yakym, Rudy [R-IN-2]
IN • R
Sponsored 6/5/2025
Rep. McCormick, Richard [R-GA-7]
GA • R
Sponsored 6/9/2025
Kustoff
TN • R
Sponsored 6/9/2025
Moore (NC)
NC • R
Sponsored 6/12/2025
Rep. Harrigan, Pat [R-NC-10]
NC • R
Sponsored 6/24/2025
Rep. Rouzer, David [R-NC-7]
NC • R
Sponsored 7/25/2025
Edwards
NC • R
Sponsored 9/26/2025
Rep. Murphy, Gregory F. [R-NC-3]
NC • R
Sponsored 11/18/2025
Buchanan
FL • R
Sponsored 11/18/2025
Rep. Miller, Carol D. [R-WV-1]
WV • R
Sponsored 1/12/2026
Rep. Smith, Adrian [R-NE-3]
NE • R
Sponsored 1/22/2026
Rep. Gooden, Lance [R-TX-5]
TX • R
Sponsored 2/13/2026
Rep. Patronis, Jimmy [R-FL-1]
FL • R
Sponsored 3/16/2026
Webster (FL)
FL • R
Sponsored 4/23/2026
Rep. Garbarino, Andrew R. [R-NY-2]
NY • R
Sponsored 5/4/2026
Rep. Grothman, Glenn [R-WI-6]
WI • R
Sponsored 5/4/2026
Roll Call Votes
No roll call votes available for this bill.
View on Congress.gov