H.R.3512 - Tackling Predatory Litigation Funding Act (119th Congress)
Summary
H.R. 3512, the "Tackling Predatory Litigation Funding Act," aims to amend the Internal Revenue Code of 1986 by establishing a tax on income derived from litigation financing provided by third-party entities. This bill targets entities that fund lawsuits in exchange for a share of the proceeds.
The bill defines key terms such as "litigation financing agreement," "covered party," and "qualified litigation proceeds" to clarify the scope of the tax. It also includes special rules for withholding taxes on litigation proceeds and clarifies the tax treatment of these proceeds.
Ultimately, the bill seeks to discourage what it deems "predatory" litigation funding by making it less financially attractive.
Expected Effects
The primary effect of this bill, if enacted, would be to increase the cost of third-party litigation funding. This could lead to a reduction in the number of lawsuits financed by these entities.
Consequently, some plaintiffs who rely on litigation funding to pursue legal claims may find it more difficult to access the legal system. The bill also introduces new tax compliance requirements for parties involved in litigation financing agreements.
Potential Benefits
- May deter frivolous lawsuits by making litigation funding less profitable.
- Could protect individuals and businesses from potentially abusive litigation tactics.
- May generate additional tax revenue for the government.
- Could lead to a more level playing field in the legal system by reducing the influence of third-party funders.
- May reduce the overall volume of litigation, freeing up court resources.
Most Benefited Areas:
Potential Disadvantages
- Could limit access to justice for plaintiffs who rely on litigation funding to pursue legitimate claims.
- May disproportionately affect individuals and small businesses with limited financial resources.
- Could create uncertainty and complexity in the tax code.
- May stifle innovation in the legal services industry.
- Could lead to unintended consequences, such as an increase in the cost of legal services.
Most Disadvantaged Areas:
Constitutional Alignment
The bill's constitutionality primarily hinges on Congress's power to tax, as granted by Article I, Section 8, Clause 1 of the Constitution, which provides Congress the power to lay and collect taxes. The bill appears to fall within this power, as it establishes a tax on income derived from litigation financing.
However, potential challenges could arise if the tax is deemed to unduly burden access to the courts, potentially implicating due process concerns. The Fifth Amendment guarantees due process, which includes the right to access the legal system.
Ultimately, the constitutionality of the bill would likely be determined by the courts if it were enacted into law.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).