Financial Regulation News (July 21, 2021) - U.S. Rep. Steven Horsford (D-NV) introduced legislation that seeks to provide tax relief for people who win consumer protection lawsuits.

The End Double Taxation of Successful Consumer Claims Act says that those 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,” Horsford said. “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 monetary damages and reimbursement for their legal fees. Typically, the consumer receives the damages while the attorney receives the fees. However, the 2017 Republican tax law required consumers 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.

Consumer cases typically involve small amounts of damages, while attorneys’ fees often make up a large proportion of the total award. 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. The End Double Taxation of Successful Consumer Claims Act would end double taxation and provide relief for consumers from paying the taxes on attorneys fees.

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.

A companion bill was introduced in the U.S. Senate by Sen. Catherine Cortez Masto (D-NV).