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Internal Revenue Code of 1986

The main body of federal tax law in the United States.

Third-party litigation funding

When an outside company or individual, not directly involved in a lawsuit, provides money to a party or law firm to cover legal expenses in exchange for a share of any money recovered from the lawsuit.

Civil action

A lawsuit or other legal proceeding between private parties, as opposed to a criminal case.

Covered party

For the purpose of this bill, any third-party entity (individual, company, or fund) that provides financing for a lawsuit and receives a share of the proceeds, but is not the attorney representing a party.

Litigation financing agreement

A written contract where a third party provides funds for a lawsuit and gains a financial interest in the outcome of that lawsuit.

Applicable percentage

The specific tax rate imposed by this bill, calculated as the highest individual income tax rate plus an additional 3.8 percentage points.

Pass-thru entity

A business structure, like a partnership or S corporation, where profits and losses are 'passed through' directly to the owners' personal income without being taxed at the company level first.