When Trump’s sweeping tax bill was signed into law on July 4, it notably excluded any changes to the tax treatment of third-party litigation funders.
The One Big Beautiful Bill (OBBB) initially included provisions to tax litigation funders' earnings at nearly 41%. Critics argued that the litigation finance industry has long enjoyed minimal taxation—or none at all in some cases—particularly when it comes to foreign investors.
The insurance industry has consistently pointed to third-party litigation funding (TPLF)—where investors finance lawsuits in return for a share of the settlement or judgment—as a key driver of rising litigation costs. A new consumer guide on legal system abuse, published by the Insurance Information Institute (Triple-I) and Munich Re US, estimates that such abuse adds approximately $6,664 to the cost of goods and services for the average American family and imposes $160 billion in tort-related expenses on small businesses.
The insurance industry has actively lobbied to restrict the practice, framing upcoming tax reform as a timely avenue for intervention.
In a statement to Faq Insurances, Jimi Grande, senior vice president of federal and political affairs at the National Association of Mutual Insurance Companies (NAMIC), said the provisions previously included in the bill would have represented a "win for Congress, the Trump Administration, and American consumers and businesses."
Instead, just ahead of the House vote, the Senate parliamentarian determined that the proposed tax hikes on profits tied to third-party litigation funding (TPLF) violated key budgetary rules. As a result, the provisions were stripped from the sweeping bill.
“Due to some misinformation, partisanship, and efforts of those who profit off the U.S. court system, the Senate Parliamentarian decided to rule against the closing of the tax loophole, which led to its removal from the OBBB,” Grande said. “Keeping this foreign funder loophole open means additional billions will fuel legal system abuse, and these foreign entities will continue paying nothing in U.S. taxes. American citizens will keep footing the bill as trial lawyers and litigation funders are incentivized to keep doing business as usual, contributing to a more litigious society and out of control tort costs impacting nearly the entire economy.”
Last month, NAMIC praised Republican lawmakers for their efforts to close what it described as a "tax loophole… weaponized by predatory funders."
Meanwhile, the International Legal Finance Association (ILFA) called the decision to omit the tax on TPLF a “clear victory for Americans.” The ILFA said litigation funding is “a vital mechanism that enables individuals and small businesses to seek justice against well-funded defendants.”
“Rather than curbing ‘predatory’ behavior, this bill would shift power away from consumers and small businesses and into the hands of the very industries—Big Tech, Big Pharma, and Big Insurance—that most often seek to avoid liability for their misconduct,” said the global TPLF trade association.
