(a)
Disallowance of Deduction—
(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”
(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 “or 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 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.”
(2)
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 any corporation, individual, partnership, or other entity, as insurance or otherwise, by reason of such corporation, individual, partnership, or entity’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:
(c)
Effective Date— The amendments made by this section shall apply to damages paid or incurred on or after the date of the enactment of this Act.