I
110th CONGRESS
1st Session
H. R. 1540
IN THE HOUSE OF REPRESENTATIVES
March 15, 2007
Mr. Lewis of Georgia (for himself, Ms. Pryce of Ohio, Mr. Levin, Mr. Ramstad, Mr. Becerra, and Mr. English of Pennsylvania) introduced the following bill; which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to exclude from gross income amounts received on account of claims based on certain unlawful discrimination and to allow income averaging for backpay and frontpay awards received on account of such claims, and for other purposes.
Short title
This Act may be cited as the Civil Rights Tax Relief Act of 2007
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Exclusion from gross income for amounts received on account of certain unlawful discrimination
In general
Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to items specifically excluded from gross income) is amended by inserting after section 139A the following new section:
Amounts received on account of certain unlawful discrimination
Exclusion
Gross income does not include amounts received by a claimant (whether by suit or agreement and whether as lump sums or periodic payments) on account of a claim of unlawful discrimination (as defined by section 62(e)).
Amounts covered
For purposes of subsection (a), the term amounts does not include—
backpay or frontpay, as defined in section 1302(b), or
punitive damages.
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Clerical amendment
The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 139A the following:
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Effective date
The amendment made by this section shall apply to amounts received in taxable years beginning after December 31, 2006.
Limitation on tax based on income averaging for backpay and frontpay received on account of certain unlawful employment discrimination
In general
Part I of subchapter Q of chapter 1 of the Internal Revenue Code of 1986 (relating to income averaging) is amended by adding at the end the following new section:
Income from backpay and frontpay received on account of certain unlawful employment discrimination
General rule
If employment discrimination backpay or frontpay is received by a taxpayer during a taxable year, the tax imposed by this chapter for such taxable year shall not exceed the sum of—
the tax which would be so imposed if—
no amount of such backpay or frontpay were included in gross income for such year, and
no deduction were allowed for such year for expenses (otherwise allowable as a deduction to the taxpayer for such year) in connection with making or prosecuting any claim of unlawful employment discrimination by or on behalf of the taxpayer, plus
the product of—
the number of years in the backpay period and frontpay period, and
the amount by which the tax determined under paragraph (1) would increase if the amount on which such tax is determined were increased by the average annual net backpay and frontpay amount.
Definitions
For purposes of this section—
Employment discrimination backpay or frontpay
The term employment discrimination backpay or frontpay means backpay or frontpay receivable (whether as lump sums or periodic payments) on account of a claim of unlawful employment discrimination.
Unlawful employment discrimination
The term unlawful employment discrimination has the meaning provided the term unlawful discrimination in section 62(e).
Backpay and frontpay
The terms backpay and frontpay mean amounts includible in gross income in the taxable year—
as compensation which is attributable—
in the case of backpay, to services performed, or that would have been performed but for a claimed violation of law, as an employee, former employee, or prospective employee before such taxable year for the taxpayer’s employer, former employer, or prospective employer, and
in the case of frontpay, to employment that would have been performed but for a claimed violation of law, in a taxable year or taxable years following the taxable year; and
which are—
ordered, recommended, or approved by any governmental entity to satisfy a claim for a violation of law, or
received from the settlement of such a claim.
Backpay period
The term backpay period means the period during which services are performed (or would have been performed) to which backpay is attributable. If such period is not equal to a whole number of taxable years, such period shall be increased to the next highest number of whole taxable years.
Frontpay period
The term frontpay period means the period of foregone employment to which frontpay is attributable. If such period is not equal to a whole number of taxable years, such period shall be increased to the next highest number of whole taxable years.
Average annual net backpay and frontpay amount
The term average annual net backpay and frontpay amount means the amount equal to—
the excess of—
employment discrimination backpay and frontpay, over
the amount of deductions that would have been allowable but for subsection (a)(1)(B), divided by
the number of years in the backpay period and frontpay period.
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Clerical amendment
The table of sections for part I of subchapter Q of chapter 1 of such Code is amended by inserting after section 1301 the following new item:
Sec. 1302. Income from backpay and frontpay received on account of certain unlawful employment discrimination.
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Effective date
The amendments made by this section shall apply to amounts received in taxable years beginning after December 31, 2006.
Income averaging for backpay and frontpay received on account of certain unlawful employment discrimination not to increase alternative minimum tax liability
In general
Section 55(c) of the Internal Revenue Code of 1986 (defining regular tax) is amended by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following:
Coordination with income averaging for amounts received on account of employment discrimination
Solely for purposes of this section, section 1302 (relating to averaging of income from backpay or frontpay received on account of certain unlawful employment discrimination) shall not apply in computing the regular tax.
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Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2006.