A loophole in the U.S. tax code allows foreign interests to pour billions into our legal system through a scheme known as Third Party Litigation Funding. These groups bankroll lawsuits, often frivolous, with the sole aim of securing a settlement. If successful, they walk away with a huge share of the winnings, tax-free.
This practice not only clogs our courts and threatens American businesses, it also effectively gives foreign funders a U.S. tax subsidy to sue American companies.
The Washington Legal Foundation provides an analysis, including a brief explanation of why US firms are at a disadvantage:
Because capital gains earned by nonresident aliens or foreign corporations are generally not subject to U.S. withholding tax—provided they are not ECI—this structure enables foreign funders to avoid U.S. tax liability entirely while profiting from litigation in U.S. courts.
Thankfully, Senator Thom Tillis has taken action to stop this abuse. His provision targeting foreign third-party litigation funding must remain in the final version of the reconciliation package currently under consideration.
Congress should not allow malicious actors exploit our legal system at the expense of American taxpayers and job creators.
