[Congressional Record Volume 161, Number 134 (Thursday, September 17, 2015)]
[Senate]
[Page S6815]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. COLLINS (for herself and Mr. Cardin):
  S. 2059. A bill to amend the Internal Revenue Code of 1986 to exclude 
from gross income amounts received on account of claims based on 
certain unlawful discrimination and to allow income averaging for 
backpay and frontpay awards received on account of such claims, and for 
other purposes; to the Committee on Finance.
  Ms. COLLINS. Mr. President, I rise to introduce the Civil Justice Tax 
Fairness Act of 2015. I am very pleased to be joined by my colleague 
from Maryland, Senator Cardin, in introducing this bipartisan bill.
  This bill would change the taxation of awards received by individuals 
that result from judgments in or settlements of employment 
discrimination and civil rights cases, and would apply to victims in 
cases including racial discrimination, sexual discrimination, and 
whistleblower discrimination. These changes would correct an inequity 
in current law and are designed to promote the fair and equitable 
settlement of such claims.
  In 2003, I introduced the Civil Rights Tax Relief Act. In 2004, 
Congress adopted the most important part of that bill, allowing 
successful plaintiffs in civil rights actions to deduct the portion of 
their awards covering attorneys' fees from their annual incomes. This 
provision eliminated the double-taxation of such fees, which are still 
taxable income to the attorney. Two important provisions from my 2003 
bill, which I will describe in a moment, have yet to be addressed, and 
the bill we introduce today would enact them.
  The primary purpose of the bill we are introducing today is to remedy 
an unintended consequence of a 1996 law, which made damage awards that 
are not based on ``physical injuries or physical sickness'' part of a 
plaintiff's taxable income. Because most acts of employment 
discrimination and civil rights violations do not cause physical 
injuries, this provision has had a direct and negative impact on 
plaintiffs who successfully prove that they have been subjected to 
intentional employment discrimination or other intentional violations 
of their civil rights.
  Our bill would remedy the unfair method of taxation of civil rights 
victims' settlements and court awards with respect to ``frontpay'' and 
``backpay,'' and with respect to the taxation of noneconomic damages. 
By way of background, I should explain that awards of compensation 
attributable to the difference between what the employee was paid and 
the amount he or she should have been paid are known as ``backpay.'' 
``Frontpay'' represents the future wages and benefits that would have 
been paid had the former employee not been terminated or had the 
employee not been forced to resign.
  Our bill contains two important reforms: First, award amounts for 
frontpay or backpay would continue to be included as taxable income, 
but would be eligible for income averaging according to the time period 
covered by the award. This correction would allow individuals to pay 
taxes at the same marginal rates that would have applied to them had 
they not suffered discrimination. Income averaging more fairly takes 
into account the person's financial standing apart from the lump sum of 
the award.
  Second, the bill would also allow plaintiffs to exclude non-economic 
damages, amounts awarded for pain, suffering or other health effects, 
from their income, to treat employment and civil rights claims the same 
as claims that involve a physical injury.
  The Civil Justice Tax Fairness Act would encourage the fair 
settlement of employment discrimination claims. Our legislation would 
allow both plaintiffs and defendants to settle claims based on the 
damages suffered, not on the excessive taxes that are now levied--
taxation that adds insult to a civil rights victim's injury and serves 
as a barrier to the just settlement of civil rights claims.
  I invite my colleagues to join Senator Cardin and me in support of 
this bipartisan, common sense legislation.
  Mr. President, I ask unanimous consent that a letter of support be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                       National Employment Lawyers


                                                  Association,

                                               September 16, 2015.
     Re: Introduction of the Civil Justice Tax Fairness Act

     Hon. Susan M. Collins,
     U.S. Senate,
     Washington, DC.
       Dear Senator Collins: On behalf of the National Employment 
     Lawyers Association (NELA) we commend and thank you for your 
     leadership in introducing the Civil Justice Tax Fairness Act 
     of 2015 (CJTFA). Your interest in this bill demonstrates the 
     kind of vision that is increasingly rare--the vision that it 
     is possible to find solutions to pressing problems that are 
     beneficial to both America's workers and employers.
       Founded in 1985, NELA is the largest professional 
     membership organization in the country comprised of lawyers 
     who represent employees in labor, employment, and civil 
     rights disputes. NELA advances employee rights and serves 
     lawyers who advocate for equality and justice in the American 
     workplace. With 69 circuit, state, and local affiliates, NELA 
     has a membership of over 4,000 attorneys working on behalf of 
     those who have faced illegal treatment in the workplace. 
     There has been unanimity among our members for nearly 20 
     years that passage of the Civil Justice Tax Fairness Act is a 
     top legislative priority.
       The CJTFA has significant ramifications for people who have 
     been harmed by illegal treatment in their workplace. No one 
     starts a new job with any thought that they will find 
     themselves in a subsequent legal dispute with their employer, 
     yet this is unfortunately a reality for America's workers. 
     The CJTFA, which has been known as the Civil Rights Tax 
     Fairness Act and the Civil Rights Tax Relief Act in prior 
     Congresses, is a ``win-win'' for both employees and business. 
     Previous versions of the CJTFA garnered widespread support by 
     a broad-based coalition of business, civil rights, and legal 
     organizations such as the U.S Chamber of Commerce (USCC), the 
     Society for Human Resource Management (SHRM), the Leadership 
     Conference on Civil and Human Rights (LCCHR), and the 
     American Bar Association (ABA). At present, we have the 
     support of the ABA and we know that many other organizations 
     will be joining us in the near future.
       The CJTFA will correct current inequities in tax treatment 
     of settlements and awards received by individuals in 
     employment and civil rights cases. Under current law, those 
     who suffer noneconomic damages as a result of unfair 
     employment practices pay taxes; those who suffer noneconomic 
     damages as a result of physical injuries (such as from car 
     accidents) do not. The CJTFA will correct this unfairness by 
     excluding from gross income non-economic damages received in 
     civil rights and employment cases.
       Similarly, employees who have not lost wages pay taxes at 
     the rates applicable to the actual wages they earned in each 
     year. But if they receive back or front pay in a settlement 
     or award, they must pay taxes on lump sum recoveries that 
     represent multiple years of such pay--a patently unfair 
     practice. The CJTFA will correct this unfairness by taxing 
     lump sum recoveries as if they were received in the year 
     earned and by providing an exemption from the alternative 
     minimum tax (AMT) for any resulting tax benefit.
       By making settlements less expensive and easier to achieve, 
     the CJTFA will reduce the number of employment and civil 
     rights cases that go to trial, freeing up valuable court 
     resources for other matters. The CJTFA not only benefits the 
     parties to employment disputes, but also America's taxpayers 
     who must bear the costs associated with a less efficient 
     judicial system.
       On behalf of our 69 affiliates, 4,000 members, and the 
     hundreds of thousands of employees they represent, we are 
     extremely pleased that you are championing this important 
     bipartisan, bicameral legislation. We look forward to working 
     closely with you and your staff to gain passage of the CJTFA 
     in the 114th Congress.
           Sincerely,
                                                   Terisa E. Chaw,
     Executive Director.

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