Damages for sexual acts or contact would receive a tax exclusion

The proposal would exclude certain damages from taxable income. The exclusion would cover damages received because of a sexual act or sexual contact, as defined in federal law. Punitive damages would not qualify for this exclusion. The rule would apply to amounts received under decisions made or agreements entered into after enactment. A decision counts as made after enactment if its first payment arrives after that date; a revised, replacement, or superseding agreement does not count if the earlier agreement was entered into on or before enactment.

A statement in a decision or agreement would count as credible evidence about why the damages were paid. This rule would apply when deciding whether damages qualify for the proposed exclusion. The statement must say that the damages were paid because of a covered sexual act or sexual contact. The proof rule would apply to amounts received under decisions made or agreements entered into after enactment, subject to the same rules for first payments and earlier agreements.

The Treasury Department would run a public awareness program about the exclusion. The program would explain the proposed exclusion from taxable income for damages tied to sexual acts or contact. Treasury would consult the Justice Department's Office on Violence Against Women and other relevant federal agencies.