Section 1 Short title
This Act may be cited as the “Stop Deducting Damages Act of 2013”.
Stop Deducting Damages Act of 2013
A BILL
To amend the Internal Revenue Code of 1986 to disallow deductions for the payment of compensatory and punitive damages to a government, and for other purposes.
Sec. 2 Treatment of payments of compensatory and punitive damages paid to a government
In general— Section 162(f) of the Internal Revenue Code of 1986 is amended to read as follows:
“(f) Damages paid to a government
“(1) Fines and penalties—No deduction shall be allowed under subsection (a) for any fine or similar penalty paid to a government for the violation of any law.
“(2) Compensatory damages—No deduction shall be allowed under this chapter for any amount paid or incurred for compensatory damages in connection with any judgment in, or settlement of, any action against a government.
“(3) 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 against a government. This paragraph shall not apply to punitive damages described in section 104(c).”
Effective date— The amendments made by this section shall apply to damages paid or incurred after October 30, 2013.
Sec. 3 Inclusion in income of punitive damages paid by insurer or otherwise
In general— Part II of subchapter B of chapter 1 of the Internal Revenue Code of 1986 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.”
Reporting requirements— Section 6041 of such Code is amended by adding at the end the following new subsection:
“(h) 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.”
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:
Effective date— The amendments made by this section shall apply to damages paid or incurred after October 30, 2013.