This bill adds a new Chapter 50B to subtitle D of the Internal Revenue Code to impose a tax equal to 100 percent of the ‘‘qualified civil action amount’’ received by covered persons — defined to include the President, Vice President, Level I Executive Schedule officials, Members of Congress, and related persons — when those individuals sue the United States (or an agency) and obtain damages by settlement, verdict, or judgment.
The measure also amends section 275(a)(6) to prevent deductions tied to the new chapter, treats the tax administratively as a subtitle A tax for enforcement, excludes the taxed amounts from gross income for other tax purposes, and applies to amounts received after enactment. The provision is designed to remove the financial upside for covered officers who bring civil actions against the federal government, while raising several drafting and enforcement questions that could affect litigation strategy, settlement negotiations, and constitutional challenges.
At a Glance
What It Does
Creates Chapter 50B in subtitle D of the Internal Revenue Code and levies a tax equal to 100% of damages (settlement, judgment, or verdict) that a covered person receives from a civil action the person filed against the United States or a federal agency during the ‘‘applicable period.’
Who It Affects
Directly affects Presidents, Vice Presidents, Level I Executive Schedule officials, Members of Congress (including Delegates and Resident Commissioners), and persons related to them under section 267(b); it also touches federal agencies that pay settlements and private counsel who negotiate or structure recoveries.
Why It Matters
It changes the incentives for high‑level officials to sue the government (and for agencies to settle) by effectively diverting monetary recoveries to the Treasury, and it uses the tax code as a regulatory and deterrent tool rather than a simple revenue measure.
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What This Bill Actually Does
The bill operates by defining a covered class of people (President, Vice President, certain senior executive officials, Members of Congress, and related persons) and then taxing — at a 100 percent rate — any damages that those people obtain in civil actions they filed against the United States or its agencies. ‘‘Damages’’ covers settlements, verdicts, and judgments; the statute calls the collected amounts the ‘‘qualified civil action amount.’n
Mechanically, the new chapter places the tax liability on the recipient for the taxable year in which the damages are received. The text also includes two administrability steps: it treats the new tax as if imposed under subtitle A for purposes of collection and enforcement, and it excludes the taxed amounts from gross income under chapter 1 so that the amounts are not counted twice in ordinary income reporting.
Separately, the bill amends an existing disallowance provision to prevent tax deductions tied to this new chapter.Two drafting features matter for practitioners. First, the statute ties the tax to damages ‘‘on account of any civil action filed by such person against the United States’’ and limits application to damages received during an ‘‘applicable period’’ defined by service dates; the cross-references in the applicable-period definition point to the President specifically, creating ambiguity about whether the timeframe is meant to track each covered office or only presidential service.
Second, the bill extends coverage to ‘‘related persons’’ under section 267(b), which is a broad related‑party definition and could sweep in family members or controlled entities that receive payments tied to a covered person's suit.The practical result is obvious: recoveries that would otherwise go to a covered plaintiff instead become taxable away to the federal Treasury, removing the economic reward from litigating the government. That shifts the bargaining dynamic in pretrial negotiations, could change willingness to pursue certain claims, and raises thorny implementation questions — from reporting and withholding to potential legal challenges about whether the tax operates as a penalty or an unconstitutional burden on access to courts.
The Five Things You Need to Know
The bill imposes a 100% tax: Section 5000E(a) levies a tax equal to 100 percent of the qualified civil action amount a covered person receives in a taxable year.
Covered persons are broadly defined: the term includes the President, Vice President, Level I Executive Schedule officials, Members of Congress (including Delegates and Resident Commissioner), and persons related to them under section 267(b).
Scope of taxable recovery: the ‘‘qualified civil action amount’’ covers the aggregate damages received by settlement, verdict, judgment, or otherwise from any civil action filed by the covered person against the United States or any federal agency or instrumentality.
Drafting wrinkle on timing: the statute defines an ‘‘applicable period’’ tied to when the individual ‘‘began serving in a position described in subsection (b)(2)(A)’’ (the President) and when that service ends, creating ambiguity whether the timing rule applies only to Presidential service or to each covered office.
Tax treatment and limits: the bill excludes taxed amounts from gross income (so they are not counted elsewhere) and amends section 275(a)(6) to prevent related tax deductions; it also makes the tax administratively collectible as if imposed under subtitle A.
Section-by-Section Breakdown
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Short title
Establishes the act's short title as the "Stop Presidential Embezzlement Act." This is a standard captioning provision with no operational effect beyond naming the statute.
100% tax on covered recoveries
Adds section 5000E(a) which imposes a tax equal to 100 percent of the "qualified civil action amount" a covered person receives during a taxable year. Practically, this is the tax hook: any monetary recovery that meets the statutory definition is effectively transferred to the Treasury through taxation rather than retained by the recipient.
Definition of covered person
Defines covered persons to include individuals who have served in positions listed in subsection (b)(2) — President, Vice President, Level I Executive Schedule, and Members of Congress — and anyone related to such an individual under section 267(b). The related‑person catch makes third‑party recipients (family, controlled entities) potentially subject to the tax if they receive recoveries tied to the covered person's suit.
Qualified civil action amount and applicable period
Defines qualified civil action amount as the aggregate damages received (settlement, verdict, judgment) from a civil action the covered person filed against the U.S. and limits application to amounts received during an "applicable period." The applicable‑period language references the date the individual began serving in a position specified in subsection (b)(2)(A) (the President) and the date they ceased serving in any position described in subsection (b)(2)(A), producing a drafting ambiguity on whether the rule is meant to track presidential service only or service in any covered office.
Administrative, income‑tax, and deduction rules; effective date
Specifies that the new tax is treated like a subtitle A tax for collection purposes, and separately excludes the qualified civil action amount from a covered person's gross income so the amount is not double‑counted under chapter 1. The bill also amends section 275(a)(6) to insert the new chapter into an existing list of nondeductible items and contains a clerical table amendment and an effective‑date clause making the changes apply to amounts received after enactment.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- U.S. Treasury — Gains revenue (in effect captures recoveries from covered persons) and reduces the net financial incentive for high‑level officers to obtain monetary recoveries from federal coffers.
- Department of Justice and agency litigating units — Potentially faces fewer high‑value suits by covered officers or sees different settlement postures, reducing asymmetric settlement pressure tied to a covered plaintiff's personal gain.
- Ethics and oversight entities (OGE, congressional ethics offices) — Policy objective aligns with preventing perceived self‑dealing by senior officials; easier to argue that monetary recoveries are not an officer's personal windfall, simplifying oversight narratives.
Who Bears the Cost
- Covered officers and their related persons — Will lose net monetary benefit from successful suits against the United States because damages will be taken by tax at a 100% rate; this includes the President, Vice President, covered senior officials, Members of Congress, and related parties under section 267(b).
- Civil‑litigation counsel and plaintiffs' law firms representing covered persons — Face a diminished fee market and altered fee‑arrangement economics; clients may decline to pursue claims or demand nonmonetary relief instead.
- Federal agencies and insurers — Settlement negotiations and defense strategies may change, potentially increasing litigation duration and costs; agencies may also need new payment and withholding procedures to comply with tax reporting and collection.
Key Issues
The Core Tension
The central tension is between preventing high‑level government officials from personally profiting from lawsuits against the United States and preserving those officials' practical ability to pursue legal redress or vindicate rights: using a blunt 100% tax eliminates personal financial gain but also risks deterring legitimate suits, generating workarounds through related parties, and inviting constitutional and statutory challenges to taxing recoveries as a punitive mechanism rather than a neutral revenue rule.
The bill uses the tax code to alter litigation incentives rather than changing substantive rights. That choice creates multiple implementation and legal questions.
First, the drafting ties the ‘‘applicable period’’ to service dates that, as written, reference presidential service specifically. If that language is not an error, the tax may only apply to recoveries received while an individual is President, which would leave recoveries obtained before or after presidential service untouched.
If it is an error, courts and agencies will face disputes about the statute's scope and intent.
Second, the inclusion of related persons under section 267(b) broadens reach beyond the named official to family members and commonly controlled entities; that invites planning and litigation aimed at routing recoveries through third parties or assignments. The bill excludes the taxed amount from gross income while simultaneously imposing a 100% tax and disallowing deductions via the amendment to section 275(a)(6), which presents odd reporting mechanics and could raise questions about whether the provision operates as a punitive penalty rather than a revenue tax — a distinction that can matter for constitutional review and for IRS collection practice.
Finally, the measure will reshape settlement dynamics: agencies may be more willing to settle nonmonetary claims but less willing to pay monetary relief that will still consume agency resources but yield no private-party cost savings if the Treasury ultimately receives the funds. That could lengthen litigation, increase administrative burdens for payment processing and withholding, and prompt new litigation over characterization of payments (compensatory damages, restitution, equitable relief) to avoid the tax.
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