Litigation Finance Levy Included in Senate Republican Tax Bill

Updated tax provisions of President Trump’s budget bill include a proposed 41% levy on litigation finance profits—a measure that would sharply curtail the attractiveness of the investment vehicle.

Senate Republicans released the new version of the tax and health care provisions on Monday. Senator Thom Tillis (R-NC) had been working to include the plan in the “big, beautiful” bill (H.R. 1), saying it would raise $3.5 billion in revenue over 10 years, according to a handout from his office.

The $15.2 billion litigation finance industry has investors paying for lawsuits in order to get a piece of an award or settlement. For litigants, the industry creates financing for cases, and for investors, it offers returns uncorrelated to the stock market. But businesses such as those represented by the US Chamber of Commerce say litigation finance drives up the cost of settlements and protracts cases.

Industry trade group the International Legal Finance Association was fighting against the inclusion of the Tillis proposal, saying it would deter investment in the industry and limit a funding source for litigation who lack financial resources.

House Republicans narrowly passed the budget bill last month. Tillis had introduced the litigation finance proposal as a separate bill last month, saying he wanted to use the tax system to bring “transparency and accountability,” according to a statement he issued at the time.

While the language is in the budget bill for now, the plan still can be changed before the Senate ultimately approves it. Also, even after the Senate acts, the House and Senate will need to negotiate over the final shape of the plan.

The litigation finance industry is no stranger to being a target of federal legislation, though all previous efforts to regulate the investors have failed. The Tillis plan represents a novel approach in that most past proposals focus on disclosure, such as requiring parties who accept outside financing for litigation to identify the source of their money.

During a litigation finance conference in New York in June, attendees were in a mini-panic about the bill. Employees from some of the larger funders urged others to act on the legislation and also join the International Legal Finance Association as paying members.