February 5, 2016

Sen. Leahy introduces another proposal to eliminate tax deductions for payments of punitive damages

Senator Patrick Leahy (D-Vt) issued a press release this week announcing that he has once again introduced a proposal to prevent taxpayers from deducting punitive damages as business expenses. He has repeatedly made similar proposals in the past.  This time, he has introduced the proposal as a proposed amendment to a pending energy bill.  You can view the text of the proposal here.

As in the past, Senator Leahy's press release touts the effect that the proposal would have on "big corporations," ignoring the fact that punitive damages are frequently awarded against small businesses, and that nothing in the proposed language limits its effect to big corporations.

The press release estimates that the proposal would increase tax revenue by $400 million over 10 years.  As Guideposts pointed out last year, the more likely effect of the proposal would be to increase incentives to settle punitive damages claims, so that the settlement payments could be characterized as tax deductible payments.

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