by John Darer® CLU ChFC MSSC CeFT® RSP CLTC
No deduction shall be allowed under this chapter for any amount paid or incurred for punitive damages in connection with any judgment in, or settlement of, any action between private parties. So says tax bill S. 2115, introduced by Patrick Leahy (D-Vermont) on November 9, 2017 and referred to the Senate Finance Committee.
What are Punitive Damages?
Punitive damages (sometimes known as “exemplary damages”), are damages intended to reform or deter a defendant and others from engaging in conduct similar to that which formed the basis of the claims in a lawsuit. While the purpose of punitive damages is not to compensate the plaintiff, the plaintiff will receive all or some of the punitive damages award.