Bills of Congress May 20, 2025 by U.S. Congress

S.1821 - Tackling Predatory Litigation Funding Act (119th Congress)

Summary

S.1821, the Tackling Predatory Litigation Funding Act, aims to amend the Internal Revenue Code of 1986 by imposing a tax on income derived from litigation financing. This tax would target third-party entities that provide funding for lawsuits and receive proceeds from settlements or judgments. The bill defines key terms like 'litigation financing agreement' and 'covered party' to clarify the scope of the tax.

Expected Effects

The primary effect of this bill would be to increase the cost of litigation financing, potentially reducing the availability of such funding. This could impact plaintiffs who rely on third-party financing to pursue legal claims. The bill also introduces withholding requirements and clarifies the tax treatment of litigation proceeds.

Potential Benefits 3/5

* **Discourages frivolous lawsuits:** By increasing the cost of litigation funding, the bill may deter meritless lawsuits.
* **Increases tax revenue:** The new tax on litigation financing proceeds could generate additional revenue for the government.
* **Levels the playing field:** By taxing third-party litigation funders, the bill may reduce the influence of these entities in the legal system.
* **Protects consumers:** By reducing predatory litigation, the bill could indirectly protect consumers from unfair or abusive lawsuits.

Most Benefited Areas:

Fiscal Responsibility & Fair Taxation ★ ★ ★ ★ ★

Potential Disadvantages

* **Reduces access to justice:** The bill could make it more difficult for plaintiffs with limited resources to pursue legitimate legal claims.
* **Harms small businesses:** Small businesses that rely on litigation funding to pursue claims against larger entities may be negatively impacted.
* **Increases complexity:** The bill introduces new tax rules and definitions, which could increase the complexity of the tax code.
* **Potential for unintended consequences:** The bill could have unintended consequences for the litigation finance industry and the legal system as a whole.

Most Disadvantaged Areas:

Social Equity & Poverty Reduction ★ ★ ★ ★ ★

Constitutional Alignment 4/5

The bill's constitutionality primarily hinges on its alignment with the power of Congress to tax and regulate interstate commerce (Article I, Section 8). The tax imposed on litigation financing income appears to fall within Congress's broad taxing authority. However, challenges could arise if the tax is deemed to unduly burden access to the courts or infringe upon other constitutional rights. The bill does not appear to directly implicate any specific constitutional amendments.

Impact Assessment: Things You Care About

This action has been evaluated across 19 key areas that matter to citizens. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).