Tackling Predatory Litigation Funding Act

New taxes and rules for lawsuit funders

This bill would create a new tax on profits from third-party lawsuit funding. The tax would equal the highest individual tax rate for the year plus 3.8 percentage points. Partnerships, S corporations, and other pass-throughs would pay the tax at the entity level. Named parties or law firms that control proceeds would need to withhold half of that tax rate on payments to funders; withheld amounts would be a credit to recipients. The bill would also add a new rule saying qualified litigation proceeds are excluded from gross income and would not be treated as capital assets. The definitions would exclude very small deals (under $10,000 per case) and loans limited to repayment or interest capped at the greater of 7% or twice last year’s 30‑year Treasury yield. These rules would apply to U.S. and foreign funders and take effect for tax years starting after December 31, 2025.