COLLINS PROTECTS DISCRIMINATION VICTIMS FROM TAX PENALTIES

Washington, DC -- Senator Susan Collins has introduced an amendment that would help to protect victims of discrimination from unfair tax penalties that are imposed on the monetary rewards they receive from their discrimination lawsuits. The amendment would apply to victims in cases including racial discrimination, sexual discrimination, and whistleblower discrimination. Currently, the monetary reward resulting from these cases is subject to high tax liabilities regardless of the victim's regular income. Also, the entire award is currently subject to tax, including the legal fees victims pay. In comparison, awards paid to compensate for the injuries suffered by victims of automobile accidents are not subject to these taxes.

"Victims of discrimination should not also be victimized by the tax system. My legislation corrects the unfair tax penalties that undermine the intent of the law that gives discrimination victims some measure of relief for what they have suffered," said Senator Collins.

Senator Collins' amendment is based on the Civil Rights Tax Relief Act, which she introduced early last year. That bill would allow income averaging to be applied to the amount of money awarded in a discrimination lawsuit that is meant to compensate the plaintiff for lost wages. Income averaging more fairly takes into account the person's financial standing apart from the lump sum of the award. The legislation would also protect plaintiffs of successful discrimination lawsuits from incurring a tax liability on the portion of their award that is paid to their attorney. Attorneys would continue to pay their own income tax on these earnings. The bill makes no changes in the current tax treatment of punitive damages, which remain fully taxable.

"It is clear that this inequity must be remedied," said Senator Collins. "Victims of discrimination must not be discouraged from pursuing their civil rights through the legal system. They should not have to pay a price, in the form of unfair taxes, for suffering discrimination and asserting their civil rights in court."

Senator Collins became involved with this issue after learning about the case of Officer Cynthia Spina, a police officer in Chicago who suffered years of harassment and sexual discrimination from her fellow officers. Officer Spina was subjected to unsolicited sexual comments, isolation, rumors, repeated and unexplained hang-up phone calls, and slashed tires. After her superiors refused to address the situation, she brought suit and won an award of $3 million in damages plus $1 million for her attorney's fees. Under current tax law, Officer Spina's award was fully taxable, obligating her to pay taxes on $4 million. In the end, instead of receiving compensation for the damages she suffered, Officer Spina ended-up paying all of it in taxes, and was still left with a tax liability of $99,000.