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Punitive Damage Award Tax Status Threatened

Washington

An overlooked provision slipped into a tax bill pending in the U.S. Senate includes a controversial section on punitive damages with implications for insurance companies as both payers and insurers of punitive damage awards.

The provision could significantly increase liability costs by abolishing the tax deduction for punitive damage payments, two attorneys contend. In addition, under the provision, if a punitive damage award is covered by insurance, the amount paid by the insurer would be included in the gross income of the policyholder.

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