The "Tackling Predatory Litigation Funding Act" introduces a new tax regime targeting third-party entities involved in litigation financing. This legislation amends the Internal Revenue Code of 1986 by adding a new chapter, Chapter 50B—Litigation Financing , which imposes a specific tax on income derived from such arrangements. The bill establishes a tax on qualified litigation proceeds received by a covered party , defined as any third party (excluding attorneys) that provides funding under a litigation financing agreement . The tax rate is set at the sum of the highest individual income tax rate and an additional 3.8 percentage points, applied at the entity level for pass-through entities. A litigation financing agreement is a written contract where a third party provides funds in exchange for an interest in the proceeds of a civil action. However, agreements under $10,000 or those limited to principal repayment plus reasonable interest (up to 7% or twice the 30-year Treasury yield) are exempt from this definition. Furthermore, the bill mandates that an applicable person , such as a named party or law firm, must withhold 50 percent of the applicable tax percentage from payments made to third-party funders. These litigation financing arrangements and their proceeds are explicitly excluded from being classified as capital assets, meaning they would not be eligible for capital gains treatment. Additionally, qualified litigation proceeds, once taxed under this new chapter, are excluded from gross income to prevent double taxation.