Tax Reform Plan Affects Antitrust and Patent Awards
The tax reform plan unveiled Feb. 26 on Capitol Hill includes provisions that would affect certain awards and damages for antitrust violations and patent and trademark infringement, according to a congressional analysis of the 979-page draft bill.
The changes would increase government revenues by around $150 million over the next ten years and would make up for tax cuts in other parts of the bill, the Joint Committee on Taxation said in a report.
One provision in the draft bill would repeal special tax rules for damage recoveries in some of those cases, the report states. Another provision would clarify the tax treatment of patent and trademark infringement awards.
In the provision on patent or trademark infringement awards, the bill would establish as law an "origin of the claim" test that courts have crafted to determine the taxation of an award. The test determines whether the amounts are compensation for a loss of profits or damage done to a capital asset.
In cases where damages are calculated on the basis of loss of profits, the award generally is treated as ordinary income to the taxpayer, the Joint Committee on Taxation said. Where damages are awarded for injury to the taxpayer's patent or trademark, or to the goodwill of the taxpayer’s business, the award is treated as a conversion of capital assets into cash.
In the other provision on recoveries of damages in antitrust violations and other cases, the bill would remove a special deduction for certain compensatory amounts, the analysis states. The provision relates to injuries sustained as a result of a patent infringement, a breach of contract, or a breach of fiduciary duty or an antitrust injury for which there is a recovery under section 4 of the Clayton Act.