Tackling Predatory Litigation Funding Act

Key Points

• This bill targets 'litigation funders'—outside companies, hedge funds, or investors who pay the legal costs for someone else's lawsuit in exchange for a portion of the final settlement or jury award.
• It would create a new federal tax on these profits equal to the highest individual income tax rate plus an extra 3.8%, which currently totals about 40.8%. This tax would be applied directly to the money the investor makes from the case.
• The policy aims to discourage outside investors from treating the U.S. court system as a profit-making market. Supporters argue this prevents 'predatory' behavior where investors take a huge chunk of a victim's recovery money.
• The tax would not apply to small funding deals under $10,000 or to simple loans with low interest rates (generally under 7%). It also doesn't apply to the regular fees earned by the actual lawyers working on the case.
• To make sure the tax is paid, law firms or the people involved in the lawsuit would be required to withhold half of the estimated tax amount before they send any money to the outside investor.
• If the bill becomes law, these new tax rules would take effect for any money earned from these legal funding agreements starting after December 31, 2025.

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