originally posted on SSRN.


The 2017 Tax Act was the most sweeping federal tax legislation in over a generation. While many of its reforms, from dramatically lowering the corporate tax rate to altering the international tax rules, have already received significant attention, little attention has been paid to the 2017 Tax Act’s effects on personal injury plaintiffs. This Article explores these impacts.

The 2017 Tax Act added a new provision that indirectly affects plaintiffs who allege sexual harassment or abuse. The new provision disallows the defendants’ deductions in these cases if the parties enter into a nondisclosure agreement. While targeted at defendants, the provision will likely unwittingly harm plaintiffs by reducing settlement offers. The provision also suffers from a host of ambiguities that the Treasury and IRS will need to resolve.

The tax legislation also eliminated so-called miscellaneous itemized deductions. In certain types of personal injury cases, such as defamation and emotional distress cases, this development will cause the plaintiff to be taxed on the full settlement amount even though one-third or more of the settlement will often be paid as a contingent fee to the plaintiff’s attorney. Legislative or administrative action is required to remedy this patent unfairness.