TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Saturday, January 6, 2018

Polsky: The New Libel Tax

Gregg Polsky (Georgia), The Libel Tax: The New Law Taxes People for Winning Defamation Claims:

President Donald Trump’s new tax law has been roundly criticized for spending $1.5 trillion largely for the benefit of big corporations and extremely wealthy individuals, for further complicating the tax code, and for lacking intellectual or policy coherence. Lost in all of this valid criticism has been scrutiny of the large number of technical flaws in the law that will haunt innocent and unsuspecting taxpayers for years to come while simultaneously providing windfalls for more sophisticated taxpayers and their advisors.

One ironic example of such a technical flaw is a change that will punish people like Summer Zervos. The former Apprentice contestant has sued Trump for defamation, based on his claim that she was lying when she accused him of making unwanted sexual advances.

The new tax bill denies defamation plaintiffs like Zervos any deductions for their attorney’s fees and costs, even when their claims succeed. The result is likely to be extremely high tax rates on defamation awards. In fact, this new tax burden on defamation plaintiffs would in some cases make it more expensive to sue someone who has defamed you than to just ignore them. ...

This preposterous situation highlights two important points. First, rushing this tax bill to meet a completely artificial year-end deadline was a serious mistake. The defamation plaintiff problem is the tiniest microcosm compared to the vast universe of loopholes that sophisticated taxpayers will be driving their proverbial trucks through. This is no way to run the tax system for the largest economy in the world. Second, to channel Leona Helmsley, it’s always only the little people, like defamation plaintiffs, who get nailed by stupid technical tax glitches. Big businesses and the wealthy have the lobbying clout to fix “mistakes” that might otherwise harm them pronto.

Tax, Tax Policy in the Trump Administration | Permalink


Or we could cap the attorney's award at the legal fees (so they earn $100K for fees plus $100K--so $200K altogether instead of $300K), and then the woman would be left with $300K, and then would still have $50K left after paying $250K in taxes.

That is, maybe it's not that taxes are too high (they are, but for everyone), but that attorney's awards are too high. How can a woman be awarded X and then end up with less than half after paying her attorney?

Or maybe defamation and IP infringement awards should be treated like inheritance and not be taxed . . .

Posted by: Alexander Libel | Jan 6, 2018 6:39:50 PM

Why doesn't the attorney pay taxes on the part that they receive?

Posted by: Alexander Libel | Jan 6, 2018 6:42:21 PM

It is ironic that Mr. Trump should call for stronger libel laws immediately after having signed a bill that imposes a severe tax penalty on successful libel plaintiffs.

Posted by: Theodore Seto | Jan 7, 2018 6:51:36 AM