S.467 - End Double Taxation of Successful Consumer Claims Act (119th Congress)
Summary
S.467, the "End Double Taxation of Successful Consumer Claims Act," aims to amend the Internal Revenue Code of 1986. It seeks to allow an above-the-line deduction for attorney fees and costs associated with consumer claim awards. This bill was introduced in the Senate by Ms. Cortez Masto on February 6, 2025, and referred to the Committee on Finance.
The bill defines 'consumer protection violation' by referencing numerous existing federal laws related to consumer protection. It includes acts unlawful under various sections of the U.S. Code, Real Estate Settlement Procedures Act, and other consumer protection statutes.
The effective date specifies that the amendments apply to attorney fees and court costs paid in taxable years ending after the enactment date, concerning judgments or settlements occurring in those taxable years.
Expected Effects
The primary effect of this bill would be to reduce the tax burden on consumers who win claims and incur attorney fees. Currently, these consumers may be taxed on the full amount of the award, even though a portion goes to legal fees.
By allowing an above-the-line deduction, the bill would enable consumers to deduct these fees directly from their gross income, potentially lowering their overall tax liability. This could incentivize consumers to pursue legitimate claims, knowing that the tax burden will be lessened.
Potential Benefits
- Reduces the tax burden on consumers who win claims and incur attorney fees.
- Simplifies the tax filing process for consumers by allowing an above-the-line deduction.
- Encourages consumers to pursue legitimate consumer protection claims.
- Provides financial relief to consumers who have been harmed by unfair or deceptive practices.
- Promotes fairness in the tax system by preventing double taxation of attorney fees.
Potential Disadvantages
- May slightly reduce government tax revenue due to increased deductions.
- Could potentially incentivize frivolous lawsuits if the tax benefits outweigh the risks.
- May create additional complexity in defining and verifying eligible consumer protection violations.
- The benefit may disproportionately favor higher-income individuals who are more likely to pursue legal claims.
- Potential for increased administrative burden for the IRS in processing and auditing these deductions.
Constitutional Alignment
The bill appears to align with the general welfare clause of the Constitution (Preamble), as it aims to provide financial relief to consumers harmed by unfair practices. Congress's power to lay and collect taxes (Article I, Section 8) is relevant, as the bill modifies the tax code.
The bill does not appear to infringe upon any specific individual rights or liberties protected by the Constitution or its amendments. It falls within the purview of Congress's legislative authority to regulate commerce and establish uniform laws regarding taxation.
However, the specific laws referenced in defining 'consumer protection violation' must themselves be constitutionally sound. The bill's alignment depends on the constitutionality of the underlying consumer protection laws it references.
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).