H.R. 6700

Stop Deducting Damages Act of 2012

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I

112th CONGRESS

2d Session

H. R. 6700

IN THE HOUSE OF REPRESENTATIVES

December 20, 2012

Mr. Welch (for himself, Mr. Connolly of Virginia, and Ms. Lee of California) 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 disallow deductions for the payment of punitive damages, and for other purposes.

1.

Short title

This Act may be cited as the Stop Deducting Damages Act of 2012.

2.

Treatment of payments for punitive damages

(a)

Disallowance of deduction for punitive damages

(1)

In general

Section 162(g) of the Internal Revenue Code of 1986 is amended—

(A)

by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B), respectively,

(B)

by striking If and inserting:

(1)

Treble damages

If

, and

(C)

by adding at the end the following new paragraph:

(2)

Punitive damages

No deduction shall be allowed under this chapter for any amount paid or incurred for punitive damages in connection with any judgment in, or settlement of, any action. This paragraph shall not apply to punitive damages described in section 104(c).

.

(2)

Conforming amendment

The heading for section 162(g) of such Code is amended by inserting and Punitive Damages after Laws.

(b)

Inclusion in Income of Punitive Damages Paid by Insurer or Otherwise

(1)

In general

Part II of subchapter B of chapter 1 of such Code is amended by adding at the end the following new section:

91.

Punitive damages compensated by insurance or otherwise

Gross income shall include any amount paid to or on behalf of a taxpayer as insurance or otherwise by reason of the taxpayer’s liability (or agreement) to pay punitive damages.

.

(2)

Reporting requirements

Section 6041 of such Code is amended by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following new subsection:

(j)

Section To Apply to Punitive Damages Compensation

This section shall apply to payments by a person to or on behalf of another person as insurance or otherwise by reason of the other person’s liability (or agreement) to pay punitive damages.

.

(3)

Conforming amendment

The table of sections for part II of subchapter B of chapter 1 of such Code is amended by adding at the end the following new item:

Sec. 91. Punitive damages compensated by insurance or otherwise.

.

(c)

Effective Date

The amendments made by this section shall apply to damages paid or incurred after December 31, 2012.