Tax Issues in Litigation: Treatment of Judgment and Settlement Payments and Deductibility of Legal Expenses

CRS Report for Congress
Tax Issues in Litigation: Treatment of
Judgment and Settlement Payments
and Deductibility of Legal Expenses
Updated April 21, 2006
Erika Lunder
Legislative Attorney
American Law Division

Congressional Research Service ˜ The Library of Congress

Tax Issues in Litigation: Treatment of Judgment and
Settlement Payments and Deductibility of Legal
Expenses
Summary
When a party involved in a lawsuit makes a payment pursuant to a judgment or
settlement agreement, the payment may be included in the recipient’s income and
may be deductible from the payor’s income. A separate issue that also arises in
litigation is whether either party may deduct the legal expenses incurred in the suit.
The nature of the underlying claim is critical in determining the proper tax treatment
of these payment and expenses. Portions of a payment may face different treatment
depending on what each represents (e.g., replacement for lost wages, reimbursement
of medical expenses, punitive damages, fines or penalties, or attorneys’ fees). This
report addresses the tax consequences of these payments and expenses to the payment
recipient and the payor. It ends with a summary of the bills that have been introduced^th
in the 109 Congress that would affect these consequences: H.R. 3 (Safe,
Accountable, Flexible, and Efficient Transportation Equity Act of 2005), H.R. 1985
(Federal Whistleblower Protection Tax Act of 2005), H.R. 2755 (Victims Tax
Fairness Act of 2005), H.R. 3076 (Freedom from Unnecessary Litigation Act of
2005), H.R. 4297 (Tax Relief Act of 2005), H.R. 4707 (Simplified USA Tax Act of
2006), S. 1565 (Tax Shelter and Tax Haven Reform Act of 2005), S. 1890
(Government Settlement Transparency Act of 2005), and S. 2020 (Tax Relief Act of

2005).

Contents
Tax Consequences to the Recipient....................................1
Awards Received for Personal Physical Injury or Sickness..............2
Physical Injury and Sickness.................................2
Emotional Distress.........................................3
Punitive Damages.........................................3
Interest on Award..........................................3
Legal Expenses...........................................3
Awards for Claims of Non-personal Injury and Non-physical Personal
Injury ...................................................4
Punitive Damages.........................................4
IRC § 186 Deduction.......................................4
Legal Expenses...........................................4
Deductibility .............................................5
Tax Consequences to the Payor.......................................7
IRC §§ 162 and 212........................................7
Fines and penalties.........................................7
Antitrust violations........................................8
Legal expenses............................................8
Legislation in the 109^th Congress......................................8
Bills Affecting the Recipient.....................................8
Bills Affecting the Payor........................................9

Tax Issues in Litigation: Treatment of
Judgment and Settlement Payments and
Deductibility of Legal Expenses
When a party involved in a lawsuit makes a payment pursuant to a judgment or
binding settlement agreement, the payment may be included in the recipient’s income
and may be deductible from the payor’s income. A separate issue that also arises in
litigation is whether either party may deduct the legal expenses incurred in the suit.
The nature of the underlying claim is critical in determining the proper tax treatment
of these payments and expenses. This report examines the tax consequences of these
payments and expenses. It ends with a summary of the legislation proposed in the

109^th Congress that would affect these consequences.

For tax purposes, it does not matter whether the payment is made pursuant to
a judgment or a binding settlement agreement. Furthermore, a payment made in a
lump sum has the same consequences as a payment made in periodic installments,
although the timing of the inclusion and/or deduction will differ. In this report, the
terms “award” and “damages” are used interchangeably and intended to include all
such payments.
Portions of a payment may face different treatment depending on what each
represents (e.g., replacement for lost wages, reimbursement of medical expenses, or
punitive damages). The different parts may be designated by the court in the
judgment or by the parties in the settlement agreement. The parties must generally
follow these allocations for tax purposes. If the judgment or agreement is silent, then
the taxpayer must make the appropriate allocations. In any case, the Internal
Revenue Service (IRS) or a judicial authority may reallocate the payment to properly
reflect the actual substance of the award.¹ In order to determine the appropriate
allocation, the IRS and reviewing authorities will look at such things as the
complaint, other pleadings, evidence presented at trial, and a settlement agreement.
Tax Consequences to the Recipient
For awards received pursuant to a judgment or settlement for claims involving
personal physical injury or sickness, the recipient’s tax consequences are determined
under section 104 of the Internal Revenue Code (IRC). For all other claims (i.e.,
non-personal injury and personal non-physical injury claims), general tax principles

¹ For example, in Robinson v. Comm’r, 102 T.C. 116 (1994), the court held that the IRS
could reallocate the award in a state court’s order because the state court had not adequately
reviewed the settlement agreement upon which the order was based.

include the award in the recipient’s income unless an exclusion exists for the item of
income that the payment is meant to replace.
Awards Received for Personal Physical Injury or Sickness
Under IRC § 104(a)(2), “the amount of any damages (other than punitive
damages) received on account of personal physical injuries or physical sickness” is
excluded from the recipient’s gross income.² This includes all non-punitive damages,
including economic ones (e.g., lost wages), that are received because of the personal
physical injury or sickness. However, any amount that is attributable to medical
expenses that have already been deducted may not be excluded.
Physical Injury and Sickness. IRC § 104(a)(2) does not define physical
injury or sickness beyond excepting emotional distress. Congress did not intend the
physical symptoms of emotional distress to be considered physical injury or³
sickness. The IRS appears to take the position that physical injuries stem from
“direct unwanted or uninvited physical contacts resulting in observable bodily harms⁴
such as bruises, cuts, swelling, and bleeding” or causing pain.
Prior to 1996, the injury or sickness did not have to be physical in order for the
award to be excluded under IRC § 104(a)(2). When deciding if the exclusion
applied, courts looked solely at whether (1) the injury or sickness was personal as
opposed to professional⁵ and (2) the claim was tort or tort-like as opposed to⁶
contractual. This led to inconsistent results, particularly about whether damages
received for various claims of discrimination qualified for exclusion.⁷ In the Small
Business Job Protection Act of 1996 (SBJPA), P.L. 104-188, Congress amended the

² Section 104 also excludes amounts received as disability income by certain individuals
injured as a result of terrorist or military action and amounts received for personal injury or
sickness (1) under workmen’s compensation acts, (2) through certain accident or health
insurance, or (3) by certain federal employees, including members of the Armed Forces.
³ See H.R. Conf. Rep. No. 104-737 at 301 (footnote 56).
⁴ See Priv. Ltr. Rul. 200041022 (July 17, 2000).
⁵ The line between personal and professional can be faint. For example, in Roemer v.
Comm’r, 716 F.2d 693 (1983), damages for injury to professional reputation were excluded
from income because the court found that such injuries were personal under state tort law.
⁶ For example, the Supreme Court held that an employment discrimination claim arising
under Title VII of the Civil Rights Act, which only allowed back pay as a remedy, was not
tort-like because the legal basis for the claim did not allow the breadth of remedies available
in tort actions. United States v. Burke, 504 U.S. 229 (1992).
⁷ For example, prior to Burke, 504 U.S. 229, the Third and Sixth Circuits allowed awards
of back pay for claims of employment discrimination to be excluded under IRC § 104, while
the Tax Court and the Fourth, Fifth, Tenth and D.C. Circuits included such awards in^rd
income. See Rickel v. Comm’r, 900 F.2d 655 (3 Cir. 1990); Burke v. United States, 929^th
F.2d 1119 (6 Cir. 1991), rev’d by 504 U.S. 229; Hodge v. Comm’r, 64 T.C. 616 (1975);^th
Thompson v. Comm’r, 866 F.2d 709 (4 Cir. 1989); Johnston v. Harris County Flood^th
Control Dist., 869 F.2d 1565 (5 Cir. 1989); Sears v. Atchison, Topeka & Santa Fe Ry., 749^th
F.2d 1451 (10 Cir. 1984); Sparrow v. Comm’r, 949 F.3d 434 (D.C. Cir. 1991).

statute to add the physical requirement. It is now clear that damages for
discrimination claims are included in income since such claims do not involve
physical injury or sickness.
Emotional Distress. Under IRC § 104(a)(2), awards for emotional distress
are included in the recipient’s income unless the emotional distress had its origin in⁸
physical injury or sickness. Emotional distress is intended to include the “symptoms
(e.g., insomnia, headaches, stomach disorders) which may result from such distress.”⁹
If medical care for the emotional distress was sought, then damages equal to those
medical costs may qualify for exclusion.¹⁰
Punitive Damages. Under IRC § 104(a)(2), as amended by SBJPA, punitive
damages that are received on account of personal physical injury or sickness are
included in the recipient’s gross income. A limited exception exists under IRC §
104(c) for punitive damages awarded in a wrongful death action if state law, as
existing on September 13, 1995, only allows the recovery of punitive damages.
Interest on Award. Courts have repeatedly held that if an award includes
prejudgment interest, the interest may not be excluded from gross income under IRC¹¹
§ 104(a)(2).
Legal Expenses. An award may include an explicit amount that represents
the recipient’s attorneys’ fees and other legal costs. This may occur because the court
awards the expenses under a fee-shifting statute, the settlement agreement includes
the expenses, or there is a contingency fee agreement that grants a specified portion
of any award to the attorney. If an award is excluded from the recipient’s income
under IRC § 104(a)(2), then any amount that represents attorneys’ fees and other
legal costs is also excluded from the recipient’s income. The amount will be
included as compensation in the attorney’s income.
Deductibility. A plaintiff with a physical personal injury or sickness claim may
not deduct the legal expenses incurred in the suit. This is because expenses incurred
in the production of tax-exempt income are not deductible.¹²

⁸ See H.R. Conf. Rep. No. 104-737 at 301.
⁹ Id.
¹⁰ See IRC § 104(a), last sentence.
¹¹ See Rozpad v. Comm’r, 154 F.3d 1 (1^st Cir. 1998); Francisco v. United States, 267 F.3d
303 (3^rd Cir. 2001); Brabson v. United States 73 F.3d 1040 (10^th Cir. 1996), cert. denied, 519
U.S. 1039 (1996); Kovacs v. Comm’r, 100 T.C. 124 (1993), aff’d in unpublished opinion,^th

74 A.F.T.R.2d 5001 (6 Cir. 1994), cert. denied, 513 U.S. 963 (1994).

¹² See IRC § 265.

Awards for Claims of Non-personal Injury
and Non-physical Personal Injury
No statutory exclusion exists for payments received pursuant to a judgment or
settlement in non-personal injury and non-physical personal injury cases. The
treatment of an award is determined by general tax principles that include the award
in the recipient’s income unless it is properly designated as a return of capital or there
is a statutory exclusion for the item of income that the payment is intended to replace.
This is determined by the nature of the underlying claim. For example, an
employment suit is a breach of contract claim and any award for back pay is meant
to substitute for the payment of wages. Since there is not an exclusion for wages
from gross income, the award is included in gross income.
If an award is included in the recipient’s gross income, it must be characterized
as ordinary income or capital gain. This is important because it determines such
things as the appropriate tax rate. The characterization is made by looking at the
nature of the underlying claim. For example, if a payment is meant to replace lost
profits, then the award is treated as ordinary income. However, if the payment is to
redress an injury to a capital asset, then the amount should be treated as capital gain.
Punitive Damages. Punitive damages that are awarded for a claim of non-
personal injury or non-physical personal injury are included in the recipient’s
income.¹³
IRC § 186 Deduction. In suits claiming patent infringement, breach of
contract, breach of fiduciary duty, or the violation of antitrust laws, the award
recipient may be allowed a deduction under IRC § 186 if the compensatory portion
of the award is included in income. The amount that may be deducted is the lesser
of the compensatory payment less the costs of securing it or the amount of
unrecovered net operating loss attributable to the injury.
Legal Expenses. As mentioned above, an award may include an explicit
amount that represents the recipient’s attorneys’ fees and other legal costs. Prior to
a Supreme Court decision in 2005 (discussed below),¹⁴ it was unclear whether this
amount was included in the recipient’s income when it was received as part of an
award in a non-personal injury or non-physical personal injury case with a
contingency fee agreement. Courts generally required it be included in the recipient’s
income.¹⁵ This approach was consistent with three fundamental tax principles: (1)
payments are included in income unless specifically excluded by statute, (2) a

¹³ See Comm’r v. Glenshaw Glass Co., 348 U.S. 426 (1955); IRC § 104(a), as amended by
P.L. 101-239.
¹⁴ Comm’r v. Banks, 543 U.S. 426 (2005).
¹⁵ See Freeman v. Comm’r, 82 T.C.Memo 643 (2001), O’Brien v. Comm’r, 319 F.2d 532 (3^rd
Cir. 1963); Young v. Comm’r, 240 F.3d 369 (4^th Cir. 2001); Kenseth v. Comm’r, 259 F.3d^th^th

881 (7 Cir. 2001); Sinyard v. Comm’r, 268 F.3d 756 (9 Cir. 2001); Campbell v. Comm’r,^th

274 F.3d 1312 (10 Cir. 2001); Baylin v. United States, 43 F.3d 1451(Fed. Cir. 1995).

taxpayer may not avoid taxation by assigning income to another party, and (3) a
taxpayer receives a taxable benefit when another party pays his or her debt.
However, some courts allowed the amount to be excluded from the recipient’s
income.¹⁶ This position had several bases: (1) the attorney’s right to the income
under state lien law, (2) the recognition that contingency fee agreements are not made
with a tax-avoidance purpose and that inclusion of the fees in the client’s income
results in the amount being subject to double taxation, and (3) equitable reasons due
to the fact that the recipient may not be able to fully deduct the legal expenses, as
explained below.
In 2005, the Supreme Court resolved the conflict by holding that the recipient
is required to include the amount representing attorneys’ fees in income.¹⁷ The Court
appeared to answer the question with relative ease based on settled law. It began by
stating that in situations involving anticipatory assignment of income, like
contingency fee agreements, the test for determining if the assignor received the
income for tax purpose is if he or she retains control over the income-generating
asset.¹⁸ The Court then reasoned that because the cause of action resulting from the
injury is the income-generating asset and the injured party retains control over it
throughout the litigation, the injured party receives all of the award for purposes of
taxation.¹⁹ The Court rejected the argument that the attorney had an ownership
interest in the asset because he or she also contributed an income-generating asset
(i.e., effort and expertise) or was granted it under state lien law.²⁰
Deductibility. A plaintiff with a claim of non-personal injury or non-physical
personal injury may be able to deduct the legal expenses incurred in the suit.
Business plaintiffs may generally deduct the entire amount of attorneys’ fees and
other litigation costs as business expenses under IRC § 162. However, if the award
was treated as capital gain, then the legal expenses should be capitalized rather than
currently deducted.²¹

¹⁶ See Cotnam v. Comm’r, 263 F.2d 119 (5^th Cir. 1959), cited as controlling in Srivastava
v. Comm’r, 220 F.3d 353 (5^th Cir. 2000); Banks v. Comm’r, 345 F.3d 373 (6^th Cir. 2003);^th
Banaitis v. Comm’r, 340 F.3d 1074 (9 Cir. 2003); Foster v. United States, 249 F.3d 1275^th
(11 Cir. 2001).
Furthermore, while courts generally hold that awards under fee-shifting statutes are income
to the plaintiff, the California Supreme Court has held that attorneys’ fees awarded under
the state’s Fair Employment and Housing Act “belong to the attorneys who labored to earn
them” rather than to the plaintiff. Flannery v. Prentice, 28 P.3d 860 at 862 (Cal. 2001).
¹⁷ Comm’r v. Banks, 543 U.S. 426 (2005). The case consolidated Banks v. Comm’r, 345
F.3d 373 (6^th Cir. 2003) and Banaitis v. Comm’r, 340 F.3d 1074 (9^th Cir. 2003).
¹⁸ See id. at 434.
¹⁹ See id. at 425.
²⁰ See id. at 435-37.
²¹ Capital expenditures are not currently deductible. IRC § 263.

The deductibility of non-business plaintiffs’ attorneys’ fees will depend on the
type of claim. Individuals with certain claims may deduct attorney fees and court
costs as an above-the-line deduction.²² This means that they will be able to deduct
the entire amount so long as it does not exceed the amount of the judgment or
settlement that was included in income. The claims to which this treatment applies
are claims of unlawful discrimination, claims against the United States under chapter
37 of title 31, and claims made under section 1862(b)(3)(A) of the Social Security
Act. Unlawful discrimination claims are those arising under:
^!section 302 of the Civil Rights Act of 1991;
^!section 201, 202, 203, 204, 205, 206, or 207 of the Congressional
Accountability Act of 1995;
^!the National Labor Relations Act;
^!the Fair Labor Standards Act of 1938;
^!section 4 or 15 of the Age Discrimination in Employment Act of

1967;

^!section 501 or 504 of the Rehabilitation Act of 1973;
^!section 510 of the Employee Retirement Income Security Act of

1974;

^!Title IX of the Education Amendments of 1972;
^!the Employee Polygraph Protection Act of 1988;
^!the Worker Adjustment and Retraining Notification Act;
^!section 105 of the Family and Medical Leave Act of 1993;
^!chapter 43 of title 38 of the United States Code, which relates to
employment and reemployment rights of members of the uniformed
services;
^!section 1977, 1979, or 1980 of the Revised Statutes (42 U.S.C.

1981, 1983, or 1985);

^!section 703, 704, or 717 of the Civil Rights Act of 1964;
^!section 804, 805, 806, 808, or 818 of the Fair Housing Act;
^!section 102, 202, 302, or 503 of the Americans with Disabilities Act
of 1990;
^!federal whistleblower protection laws;
^!any provision of federal, state, or local civil right law that provides
for the enforcement of civil rights; and
^!federal, state, or local employment and labor laws.²³
Other individuals may deduct legal expenses as an income-production expense
under IRC § 212. Income-production expenses are deducted as miscellaneous
itemized deductions, which are subject to three limitations.²⁴ First, they are

²² See IRC § 62(a)(20). This provision was added by the American Jobs Creation Act of
2004 (P.L. 108-357). It is effective for fees and costs paid after October 22, 2004, for any
judgment or settlement occurring after that date.
²³ See IRC § 162(e).
²⁴ Above-the-line deductions are not subject to these limitations. Plaintiffs in employment
discrimination suits have tried to characterize awards of attorneys’ fees as reimbursed
employee business expenses, which give rise to an above-the-line deduction under IRC § 62.
(continued...)

deductible only to the extent that all miscellaneous itemized deductions exceed two
percent of the taxpayer’s adjusted gross income.²⁵ Thus, the legal expenses will not
be fully deductible. Second, taxpayers who are subject to the alternative minimum
tax may not deduct any expenses as miscellaneous itemized deductions.²⁶ Third,
taxpayers with adjusted gross income in excess of $145,950 ($72,975 if married
filing separately) are subject to an overall limitation on itemized deductions.²⁷
Tax Consequences to the Payor
When a taxpayer makes a payment pursuant to a judgment or settlement, the
payment may be deductible as a business expense under IRC § 162 or as an income-
production expense under IRC § 212. This is generally true regardless of whether the
payment represents compensatory or punitive damages. However, a deduction is not
allowed to the extent that the taxpayer has been reimbursed for the expenses through
insurance or other means. Additionally, fines and penalties paid to a government and
payments in antitrust suits are subject to special rules.
IRC §§ 162 and 212. Under IRC § 162, taxpayers may deduct “all the
ordinary and necessary expenses paid or incurred during the taxable year in carrying
on any trade or business.” Under IRC § 212, taxpayers who are not carrying on a
trade or business may deduct the “ordinary and necessary expenses” that are made
pursuant to an income-producing activity. An expense is “ordinary” if it is not a
capital expenditure. Whether a payment made pursuant to a judgment or settlement
is a capital expenditure is determined by the nature of the underlying claim. In
general, the payment is a capital expenditure if it is capital gain to the recipient. An
expense is “necessary” if it is appropriate for carrying on a trade or business or in the
production of income. Payments made pursuant to a judgment or settlement are
generally considered to be appropriate.
If a payment is deducted as an income-production expense under IRC § 212, the
payor will not be able to deduct the full amount. This is due to the limits on
miscellaneous itemized deductions, which were discussed in the “Legal expenses”
section under Awards for Non-personal Injury and Non-physical Personal Injury
Claims.
Fines and penalties. IRC § 162(f) disallows a deduction “for any fine or
similar penalty paid to a government for the violation of any law.” Fines and
penalties include (1) civil and criminal penalties imposed for the violation of any law
after conviction or a plea of guilty or no contest and (2) payments for the settlement

²⁴ (...continued)
It does not appear that any court has allowed this treatment.
²⁵ See IRC § 67.
²⁶ See IRC § 56(b)(1)(A).
²⁷ See IRC § 68. Beginning in 2006, the overall limitation is gradually phased out until it
is repealed in 2010. See P.L. 107-16, the Economic Growth and Tax Relief Reconciliation
Act of 2001 (EGTRRA). EGTRRA’s provisions expire on December 31, 2010.

of the taxpayer’s actual or potential liability for a criminal or civil fine or penalty.²⁸
Fines and penalties do not include compensatory damages or legal fees.²⁹
Antitrust violations. In civil antitrust suits, the plaintiff is awarded damages
that equal three times the actual damages. Under IRC § 162(g), the payor of such an
award is not allowed to deduct two-thirds of it (i.e., the noncompensatory part of the
award). For the section to apply, the taxpayer must have been convicted or pled
guilty or no contest in a related criminal proceeding.
Legal expenses. The payor may be able to deduct the legal expenses
incurred in the suit as a business expense under IRC § 162 or an income-production
expense under IRC § 212. Expenses deducted under IRC § 212 will not be fully
deductible due to the limits on miscellaneous itemized deductions that were
discussed above. Legal expenses should not be deductible if the award payment was
capitalized.
Legislation in the 109^th Congress
Bills Affecting the Recipient
H.R. 1985 (Federal Whistleblower Protection Tax Act of 2005) would exclude
damages and the amounts awarded for attorneys’ fees and costs from the recipient’s
income in claims brought under federal whistleblower protection laws. Punitive
damages and damages on account of lost income would not be excluded from
income. The bill would allow income-averaging on awards of lost income, so that
the whistleblower would not be taxed on the entire award in the year it was received.
H.R. 2755 (Victims Tax Fairness Act of 2005) would explicitly state that the
recipient’s gross income includes awards representing attorneys’ fees and costs in
non-physical personal injury cases, and then would allow the recipient to deduct the
full amount as an above-the-line deduction.
H.R. 3076 (Freedom from Unnecessary Litigation Act of 2005) would exclude
all medical malpractice damages that were awarded in binding arbitration from the
recipient’s income.
H.R. 4707 (Simplified USA Tax Act of 2006) would return the law to how it
was before SBJPA. Awards, other than punitive damages, for non-physical personal
injury or sickness and punitive damages for physical personal injury or sickness
would be eligible for the IRC § 104 exclusion. This is one provision in the bill,
which is a fundamental tax reform bill.

²⁸ See 26 CFR § 1.162-21(b)(1).
²⁹ See 26 CFR § 1.162-21(b)(2).

Bills Affecting the Payor
Several bills contain a provision that would amend IRC § 162(f) to expand the
disallowance of a deduction for the payment of fines and penalties to a government.
Under the provision, only the portion of a payment paid to a government in relation
to the violation of any law or the investigation or inquiry into the potential violation
of any law that represents restitution would be deductible. Additionally, no
deduction would be allowed for a payment to a nongovernmental regulatory agency
if the payment would have been nondeductible if paid to a government. The
provision would clarify that payments for fines and penalties are not deductible when
made under the direction of, and not just to, a government or nongovernmental
agency. It would also require the government or agency to report information on the
payment to the IRS and all the parties in the suit. The provision is included in S.
1565 (Tax Shelter and Tax Haven Reform Act of 2005) and the Senate-passed
version of H.R. 3 (Safe, Accountable, Flexible, and Efficient Transportation Equity
Act of 2005). H.R. 3 was enacted into law as P.L. 109-59 with the provision stripped
during conference. Additionally, two bills include similar provisions that would also
allow a deduction for amounts paid to come into compliance with any law which was
violated or involved in the investigation or inquiry. These are S. 1890 (Government
Settlement Transparency Act of 2005) and the Senate-passed version of H.R. 4297
(Tax Relief Act of 2005).
A provision in several bills would prohibit a payor from deducting the payment
of punitive damages. A limited exception would exist for punitive damages paid
under a wrongful death statute described in IRC § 104(c). Also under the provision,
if the punitive damages were paid by insurance, then the insured party would include
the amount in income and the insurer would report the amount to the IRS. This
provision has been introduced in S. 2020 (Tax Relief Act of 2005), the Senate-passed
version of H.R. 4297 (Tax Relief Act of 2005), and the Senate-passed version of
H.R. 3 (Safe, Accountable, Flexible, and Efficient Transportation Equity Act of
2005). H.R. 3 was enacted into law as P.L. 109-59 with the punitive damages
provision stripped during conference.