S-467-119
Read twice and referred to the Committee on Finance.
Sponsored by Catherine Cortez Masto (D-NV)
What it does
This bill would create an above-the-line federal income tax deduction for court costs and attorney's fees that an individual receives as part of a settlement or court judgment in certain consumer protection cases. The deduction would cover fees awarded in claims involving unfair, deceptive, or abusive trade or credit practices, harm caused by sellers or providers of goods, services, investments, or credit, and similar consumer protection violations. The deduction would only apply to the extent those amounts are already included in the individual's taxable gross income.
Who benefits
Individual consumers who win or settle consumer protection lawsuits and receive attorney's fees or court costs as part of the award — particularly those in contingency-fee cases where the attorney is paid directly from the award. Plaintiffs' attorneys who handle consumer protection cases on contingency, as the deduction may make such litigation more financially viable for clients. Lower- and middle-income consumers who are most likely to use contingency-fee arrangements and who would otherwise owe income tax on fees they never personally received. Consumer advocacy organizations whose members frequently bring such claims.
Who is hurt
The federal government would collect less tax revenue, which could indirectly affect funding for federal programs or require offsetting revenue elsewhere. Businesses and financial institutions that are defendants in consumer protection suits may face a modest increase in litigation, as the deduction could reduce the after-tax cost of pursuing claims. Tax professionals and preparers may face increased complexity in calculating deductions for clients with mixed claim types.
Supporters argue
Supporters argue that taxing attorney's fees awarded to a winning consumer plaintiff is fundamentally unfair because the individual never actually receives or controls that money — it goes directly to their lawyer — yet they are still taxed on it as income. They contend that Congress already recognized this inequity for employment and civil rights discrimination claims by providing the same above-the-line deduction, and that there is no principled reason to treat consumer protection claimants differently. Extending the deduction, they argue, levels the playing field and ensures that winning a consumer fraud case does not result in a surprise tax bill that wipes out the actual recovery.
Opponents argue
Opponents argue that the existing deduction for employment and civil rights claims was justified by the unique public interest in vindicating those specific constitutional and statutory rights, and that expanding it to the broad category of consumer protection claims goes well beyond that rationale. They contend that the bill reduces federal tax revenue without a clear offset, and that the same result could be achieved through more targeted litigation finance or fee-shifting reforms rather than a tax code change that benefits a relatively narrow group of successful litigants. Critics may also argue that the deduction primarily benefits plaintiffs' attorneys by making contingency-fee litigation more attractive, rather than directly helping consumers.
Constitutional context
The Taxing and Spending Clause (Art. I, §8, cl. 1) gives Congress broad authority to create deductions and define taxable income. The Sixteenth Amendment permits Congress to tax income from any source, and by the same authority, to exempt or deduct categories of income. No active constitutional tension is present here — this bill modifies an existing deduction category within well-settled congressional taxing power.
Checks and balances
Congress gains no new structural power; the bill modifies the Internal Revenue Code within existing legislative taxing authority, with IRS responsible for implementation and enforcement, and federal courts available for taxpayer challenges.
Historical precedent
The American Jobs Creation Act of 2004 established the existing above-the-line deduction for attorney's fees in employment discrimination and civil rights cases, which this bill directly expands to cover consumer protection claims.