Tackling Predatory Litigation Funding Act

Exemption for Small Agreements: Litigation financing agreements where the total amount of funds is less than $10,000 are not subject to these rules, which could protect smaller-scale financing arrangements (Section 2, Sec. 5000E-2(3)(C)(i)).

Exemption for Standard Loan Repayments: Third parties are not subject to the tax if their right to receive proceeds is limited to the repayment of the principal of a loan, or the principal plus interest at a specific capped rate (Section 2, Sec. 5000E-2(3)(C)(ii)).

Exemption for Attorney Fee Reimbursement: The tax does not apply to agreements where the third party's right to receive proceeds is limited to the reimbursement of attorney's fees (Section 2, Sec. 5000E-2(3)(C)(ii)).

New Tax Burden on Litigation Funders: A tax is imposed on any "covered party" that receives income from a litigation financing agreement. This tax is set at the highest tax rate plus an additional 3.8 percentage points (Section 2, Sec. 5000E-1(a) and (b)).

Withholding Requirements for Parties Involved: People or law firms that have entered into a litigation financing agreement may be required to deduct and withhold 50 percent of the applicable tax percentage from the payments made to the third party (Section 2, Sec. 5000E-3(a)).

Tax Application to Pass-Thru Entities: For entities such as partnerships or S corporations that act as covered parties, the tax is applied at the entity level (Section 2, Sec. 5000E-1(c)).

Restrictions on Tax Offsets: For the purpose of calculating "qualified litigation proceeds," income cannot be reduced or offset by ordinary or capital losses within the taxable year (Section 2, Sec. 5000E-2(4)(B)).