Congressman Steven Horsford (July 19, 2021) – WASHINGTON, D.C. — Congressman Steven Horsford (D-NV-04) has introduced the End Double Taxation of Successful Consumer Claims Act, which would help ensure that Nevadans who win consumer protection lawsuits are not liable for taxes on the fees paid to their attorneys.

“Corporate wrongdoing often targets the most vulnerable consumers — including our seniors, military families, and those without the means to fight back. When Nevadans successfully litigate fraud claims, they ought to be fully compensated, not hit with burdensome taxes,” said Congressman Steven Horsford. “I’m glad to work with Senator Cortez Masto to introduce the End Double Taxation of Successful Consumer Claims Act, which would reverse harmful provisions of the 2017 Republican tax law and ensure that Nevadans can hold corporations fully accountable for fraud and abuse.”

When consumers win legal claims, they are often awarded both monetary damages and reimbursement for their legal fees. In most cases, the consumer receives the damages while the attorney receives the fees. As a result of the 2017 Republican tax law, consumers are currently required to pay taxes on the amount paid to them and the amount paid to their attorney, with no way to deduct the fees. Attorneys are also required to pay taxes on the legal fees they receive, resulting in double taxation.

Because consumer cases are time-consuming to litigate but typically involve small amounts of damages, attorneys’ fees often make up a large proportion of whatever the total award is in a consumer case. As a result, if the consumer is taxed on the total amount (damages awarded plus attorneys’ fees awarded), the taxes can consume a significant portion of the money awarded to the plaintiff. In some cases, taxes on attorneys’ fees will exceed the consumer’s compensation from winning a judgment in their favor.

Requiring consumers to pay taxes on money they did not receive creates financial hardship and could result in fewer consumers seeking redress for fraudulent acts by corporations. The End Double Taxation of Successful Consumer Claims Act would end double taxation and ensure that consumers who successfully litigate fraud claims are appropriately compensated.

Consumer Cases Illustrate the Need for Action

In Nevada and across the nation, consumers are being penalized when they hold corporations accountable for fraud and abuse.

Mrs. H, a longtime resident of Las Vegas, filed bankruptcy in 2015 after suffering a financial blow from the foreclosure crisis several years earlier. With the permission of the court, she sold her home to pay off her remaining mortgage debt. In 2018, she discovered that her big bank mortgage servicer was reporting her home loan as delinquent even though it was fully paid off in 2015. After an unsuccessful attempt to dispute this serious error, Mrs. H hired an attorney who helped her file a claim against the bank and two credit agencies for violating the Fair Credit Reporting Act. After several months of litigation, Mrs. H reached a settlement with the bank and credit agencies. They agreed to fix her credit report, pay a small amount of damages, and reimburse her legal expenses to pay her attorney. In 2020, Mrs. H received an IRS 1099 form claiming she had received the reimbursed fees as income, even though they were actually paid to her attorney. As a result, the IRS expected both Mrs. H and her attorney to pay income taxes on the same funds, leaving her recovery less than whole.

For more information about the End Double Taxation of Successful Consumer Claims Act, click here.

For the bill text, click here.

The bill is supported by the National Association for Consumer Advocates, Consumer Federation of America, American Association for Justice, Americans for Financial Reform, National Consumer Law Center (on behalf of its low-income clients), Consumer Action, Public Citizen, Public Justice, US PIRG, National Association for Latino Community Asset Builders (NALCAB), National Consumers League and Consumers for Auto Reliability and Safety, and the Public Investors Advocate Bar Association.

The End Double Taxation of Successful Consumer Claims Act was introduced in the Senate by Senator Catherine Cortez Masto (D-NV) as S. 766.