Senate Bill Seeks to Help Victims of Sexual Harassment

John Darer • May 28, 2018

Repeal Trump Tax Hike on Victims of Sexual Harassment Act of 2018 | S.2820

Sexual Harassment Settlement  Tax Cut and Jobs Act

The treatment of attorneys fees paid in connection with settlement of lawsuits or claims for sexual harassment or sexual abuse has been in need of clarification since the moment the recent Tax Cuts and Jobs Act has been enacted. Here's what it says:


PL 115-97 SEC. 13307. DENIAL OF DEDUCTION FOR SETTLEMENTS SUBJECT TO NONDISCLOSURE AGREEMENTS PAID IN CONNECTION WITH SEXUAL HARASSMENT OR SEXUAL ABUSE.

(q) PAYMENTS RELATED TO SEXUAL HARASSMENT AND SEXUAL ABUSE.—No deduction shall be allowed under this chapter for—

  1. any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or
  2. attorney’s fees related to such a settlement or payment.
Apparent Tie to Non Disclosure Agreement? But...
At first glance it appears that the disallowance is tied to the use of a Nondisclosure Agreement, but it begs the question what about the deduction of attorney’s fees that don’t involve an NDA? One could argue that the Conference Committee Report suggests that the disallowance applies if such payments for sexual harassment or sexual abuse only if there is an NDA, but it is not clear since the disallowance for attorney’s fees is tied to part 2 “such settlement or payment”. It could be that all attorney’s fees related to a settlement or payment for sexual harassment or sexual abuse are disallowed.

Clarity Needed For Plaintiff Tax Treatment
Clearly the defendant’s attorney’s fees are disallowed, but what about the plaintiff’s expense if there is an NDA? If there is no exclusion for the plaintiff because the settlement was not on account of physical injuries or sickness [per I RC 104(a)(2) ], the plaintiff may be disallowed the deduction of any attorney’s fees since the provision does not explicitly refer only to defendant's /payor’s attorney’s fees. While this may not be the intent of the Tax Cut and Jobs Act, it may be a likely and highly negative impact on victims of sexual harassment/sexual abuse. This would result in the plaintiff paying tax on 100 percent of a settlement while up to 40 percent is paid to the attorney, not to mention the attorney's costs. Until there is a statutory change to this provision or IRS guidance to the contrary, the loss of the plaintiff’s deduction could complicate settlement negotiations.

Retroactive Amendment Sought in S.2820

Senate Bill 2820 introduced by Senator Robert Menendez (D-NJ) proposes that Section 162(q)(2) of the Internal Revenue Code of 1986 is amended by inserting ‘‘in the case of the taxpayer for whom a deduction is disallowed by reason of paragraph (1),’’ before ‘‘attorney’s fees’’. The bill was introduced May 10, 2018 and seeks an effective date of the day of enactment of the Tax Cut and Jobs Act.

What We Do

4structures.com LLC's John Darer ®is a Certified Financial Transitionist®, with a process and tools when working with people in transition and offers tax efficient solutions to help resolve sexual harassment lawsuits

Resources

USAA structured settlements
By John Darer July 16, 2025
USAA Life Insurance Company, an A++ rated insurance company, issues structured settlement annuities with 1%, 2% and 3% COLAs. USAA Life structured settlements are exceptionally compatitive on lifetime benefit payments with long duration certain periods for ages under 35.
MetLife Structured Installment Sales Now Available in New York
By John Darer July 8, 2025
Owners of highly appreciated NY businesses or NY real estate may benefit from a structured installment sale tax deferral program as an alternative to a 1031 exchange. MetLife's structured installment sale program is now available in NY and in all 50 states. Call 888-325-8640 for more info
what is a qualified assignment
By John Darer July 8, 2025
A qualified assignment is part of the process to establish a structured settlement that enables a Defendant, Insurer, or Qualified Settlement Fund, to achieve a complete novation of the future periodic payment claim established by suit or agreement, through a substitution of obligors.
structured settlement annuity
By John Darer July 2, 2025
An annuity and a structured settlement walked into a bar, how do you tell them apart? 4structures' John Darer reviews the differences for you right here.
lifetime structured settlement annuity lake tahoe
By John Darer July 2, 2025
A lifetime structured settlement annuity turns part of your settlement recovery  into guaranteed income you can’t outlive that is contractually guaranteed by a regulated life insurance company. A lifetime annuity is sometimes referred to as longevity insurance.
Budgeting and Settlement Planning
By John Darer July 1, 2025
Structured settlement annuities can be very helpful to the budgeting process by providing guaranteed income streams and deferred lump sum payments tailored to specific budget needs and time frames identified in the settlement planning process.
secondary market annuity
By John Darer June 28, 2025
Structured settlement receivables are often deceptfully marketed to investors as annuities. When the originating structured settlement factoring company buys structured settlement payments in a structured settlement factoring transaction, they are buying a receivable not an annuity.
constructive receipt structured settlement
By John Darer June 21, 2025
Avoid constructive receipt if a structured settllement or structured attorney fee is to be established. Care must be taken to avoid constructive receipt.
USAA Life Insurance Company structured settlements
By John Darer June 9, 2025
Financial services provider USAA ranks 94th on Fortune 500. USAA Life Insurance Company, which earns the top rating of A++ from AMBest is often super competitive on longer term payment streams.
Prudential Income Advantage Indexed Structured Settlement Annuity
By John Darer June 2, 2025
John Darer reviews Prudential Income Advantage structured settlement annuity, which provides indexed structured settlement annuity option with the potential to grow personal injury settlement funds while offering protection from market declines. 2 IRS Private Letter Rulings!
More Posts