Sec. 202. Limitation on tax based on income averaging for compensation received on account of certain unlawful employment discrimination
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Part I of subchapter Q of chapter 1 of the Internal Revenue Code of 1986 (relating to income averaging) is amended by adding at the end the following new section: In the case of any employment discrimination compensation received during any taxable year, the tax imposed by this chapter for such taxable year with respect to such compensation shall not exceed the sum of— the tax which would be so imposed if— no amount of such compensation were included in gross income for such year, and no deduction were allowed for such year for expenses otherwise allowable as a deduction to the taxpayer for such year in connection with making or prosecuting any claim of unlawful employment discrimination by or on behalf of the taxpayer, plus the product of— the combined number of years in the backpay period and the foregone compensation period, and the amount by which the tax determined under paragraph
(1)would increase if the sum of— the average of the average annual net employment discrimination compensation in the backpay period, and the average of the average annual net employment discrimination compensation in the foregone compensation period, were included in gross income for such year. For purposes of this section— The term employment discrimination compensation means any backpay or foregone compensation receivable (whether as lump sums or periodic payments) on account of a judgment or settlement resulting from a claim of unlawful discrimination (as defined in section 62(e)) in violation of law which relates to employment. The term backpay means amounts which are includible in gross income for the taxable year as compensation which is attributable to services performed (or which would have been performed but for the violation of law described in paragraph (1)) as an employee, former employee, or prospective employee in years before such taxable year for the taxpayer’s employer, former employer, or prospective employer. The term foregone compensation means amounts which are includible in gross income for the taxable year as compensation which is attributable to services which would have been performed in years after such taxable year but for the violation of law described in paragraph (1). The term backpay period means the period during which services described in paragraph
(2)were performed or would have been performed but for the violation of law described in paragraph (1). If such period is not equal to a whole number of taxable years, such period shall be increased to the next highest number of whole taxable years. The term foregone compensation period means the period during which services described in paragraph
(3)would have been performed but for the violation of law described in paragraph (1). If such period is not equal to a whole number of taxable years, such period shall be increased to the next highest number of whole taxable years. The term average annual net employment discrimination compensation with respect to any period means the amount equal to— the excess of— employment discrimination compensation attributable to such period, over the amount of the deductions described in subsection (a)(1)(B), divided by the total number of years in the backpay period and the foregone compensation period. . The table of sections for part I of subchapter Q of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 1301 the following new item: Sec. 1302. Income from compensation received on account of certain unlawful employment discrimination. . Section 55(c) of the Internal Revenue Code of 1986 is amended by redesignating paragraph
(3)as paragraph
(4)and by inserting after paragraph
(2)the following new paragraph: Solely for purposes of this section, section 1302 shall not apply in computing the regular tax liability. . The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after the date of the enactment of this Act.