No Tax Write-offs for Corporate Wrongdoers Act

The No Tax Write-offs for Corporate Wrongdoers Act (S. 4318) proposes to change how the federal government treats punitive damages in legal cases. Under current law, corporations can often deduct these payments—which are intended to punish egregious misconduct—as ordinary business expenses to lower their tax bills.

This bill would prohibit companies from claiming tax deductions for any punitive damages paid through court judgments or legal settlements. Additionally, if a company’s insurance provider pays out these damages on their behalf, that payment would be treated as taxable income for the company. The practical impact is that corporations would be required to pay the full cost of court-ordered penalties without receiving a tax subsidy, potentially increasing federal tax revenue and ensuring that financial punishments for misconduct are not partially offset by tax breaks.