The Joint Committee on Taxation (JCT) on June 22, 2025, released tables providing revenue estimates for provisions of the recent Senate Committee on Finance bill language (JCX-29-25) as well as those of the comparable House bill (JCX-22-25 HOUSE).
A few aspects of the tables are eye-catching and worthy of further consideration. First are those provisions appearing in the Senate legislation, but not present in the House (and vice versa). When this happens, it is often due to a need to identify sources of revenue to offset other aspects of the bill or bills that have a negative revenue effect. An example of such a new revenue-raiser is the litigation funding provision in the Senate bill, which was otherwise not included in the earlier House version.
Another example is in certain provisions that were included in both the House and Senate’s versions of the tax language but have produced broadly different revenue impacts according to the JCT when comparing the two different iterations of scoring tables. In this instance, the most notable example may be the scoring differential between the House and Senate for section 899 from $116 billion to around $52 billion.
These differences likely merit a deeper inquiry into the substantive differences in the respective measures from each chamber. While that is beyond the scope of this release, it does suggest that impacted clients and taxpayers may continue to pursue a dialogue with tax-writing committee members and their staff about the details of these provisions, how to improve them, and/or whether they might merit reconsideration.
We take a closer look at the provisions and key takeaways below.
Third-party litigation funding tax
The new provision imposes a new fairly high excise tax which is designed to deter third parties (ie, investors that are not direct parties to the litigation) from providing funding (funders) to plaintiffs and their lawyers. One of the purposes of this legislation appears to be to achieve a reduction in litigation activity:
- The tax is on a transaction-by-transaction level and is coupled with a denial of offsets for losses or other deductions
- The applied rate is approximately 20-percent higher than the rate applied to alternative investments that US domestic taxpayers could make at capital gains or corporate rates (plus an additional 3-percent increase from ordinary income)
- The rate is 40.8-percent higher than the 0-percent rate paid by other classes of investors, including tax-exempt investors (eg, pension funds, endowments) and foreign investors' capital investments
- The withholding tax covers payments to US domestic taxpayers – a novel application – and, on initial review, may conflict with tax treaty provisions as it relates to payments to non-US entities. It also appears to be based on 20.4 percent of receipts rather than profits, which may complicate the ability of an investor to recoup the principal investment for at least 1.5 years
- Lastly, the provision takes a novel approach by excluding litigation funding proceeds from gross income appearing to deter lead capital from investing in the asset class, thereby reducing litigation suit activity.
As noted, the House bill did not include a third-party litigation funding provision. However, in the newly released JCT scoring tables associated with the Senate version of the tax legislation, the JCT has formally scored the provision as raising $2.5 billion over the 10-year budget window. In this regard, market participants have suggested that they anticipate considerable investor flight from investing in litigation finance. They view the effective tax rate to far exceed the statutory rate – generally viewed as 44 percent at current rates – and believe the JCT’s scoring understates the true tax burden. As a result, they expect after-tax returns on these investments to fall below those of other investment options. This capital flight could lead to a contraction of the market, which in turn could reduce the tax generated from this change.
Furthermore, in light of the significant difference in the score for section 899 in the tables between the House and Senate bill, it raises the question: Where did this revenue estimate come from? It is generally understood that the JCT’s modeling methodology is subject to certain constraints that may limit what it can consider in its scoring – particularly with respect to countervailing economic consequences, or changes in the behavior of affected taxpayers that would be constructive in the accuracy of the provision-by-provision scoring of assessments.
For example, if the provision is implemented as drafted, the practical effect may be that litigation lawyers – for both plaintiffs and defendants – would bill fewer hours as a result of a decline in funding. This drop in activity may result in a corresponding reduction in associated attorney income and, therefore, a drop in associated income tax revenue to the US Treasury, per ordinary income tax rates; it is not clear whether the JCT modeling is able to take this economic reality into account for scoring purposes.
Some have questioned whether the policy goal of litigation or tort reform is best achieved through the imposition of a new tax, as well as whether a reconciliation bill is the appropriate vehicle. Similar Senate protocol and policy questions were raised last week regarding Senate Banking Committee provisions, where the Senate parliamentarian excluded certain provisions from the Senate bill on the grounds of being policy-oriented.
Proposed section 899 retaliatory tax
Section 899 would impose a retaliatory tax on taxpayers from offending foreign countries. "Offending foreign countries" are those that have enacted either (a) extraterritorial taxes, such as the undertaxed profits rule (UTPR), or (b) discriminatory taxes, such as digital services tax (DSTs). Countries in Europe, the UK, and Australia are expected to be among those treated as offending foreign countries.
The apparent goal of this tax is to encourage taxpayers from those jurisdictions to engage in discussions with their own governments to amend or repeal their extraterritorial taxes or discriminatory taxes that the US views as unfair. As with the proposed third-party litigation funding tax, many have questioned whether the reconciliation bill is the appropriate venue to enforce this dramatic shift in US tax policy.
The JCT’s scoring for the Senate’s section 899 shows a significant revenue differential compared to the House version – $116 billion in the House bill, versus just over $52 billion in the Senate bill. While both bills propose a similar framework, there are key differences:
- The Senate bill distinguishes between extraterritorial taxes and discriminatory taxes and reduces the impact of section 899 for taxpayers from countries that impose only a discriminatory tax, but not an extraterritorial tax. Section 899 would deny section 892 benefits to governments of discriminatory foreign countries under both tax types, but – unlike the House Tax Bill – would only increase the rate of withholding for countries that adopt extraterritorial taxes.
- The rate of tax increase is up to 15 percentage points in the Senate Tax Bill as compared to 20 percentage points for the House Tax Bill.
- The Senate bill sets the earliest effective date as January 1, 2027, while the House bill could apply as early as January 1, 2026. The delayed effective date in the Senate bill may be intended to give those jurisdictions time to repeal offending taxes and avoid classification as an offending foreign country" under section 899.
Next steps
These are preliminary observations based on the JCT’s tables as of June 22, 2025. Further clarity on issues such as the section 899 scoring disparity is expected as the Senate continues its deliberations and works toward reconciling differences with the House, with the goal of enacting the “One Big Beautiful Bill Act” into law in the near future.
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