The Carter administration yesterday proposed a tax amendment that would allow businesses an extended period for writing off losses attributable to product liability suits.
The amendment, proposed by Commerce Secretary Juanita Kreps, would extend the carry-back period to ten years from the three years now provided in the Internal Revenue Code. The Commerce Department is also considering and amendment that would extend the carry-forward period.
The proposed amendment evolved from an 18-month interagency study that found thousands of small businesses affected by serious product liability problems because they cannot afford liability insurance.
Kreps said the amendment would help ensure the a business would not be forced out of business by a large, unanticipated liability suit.
The proposed would allow a firm that suffered a net operating loss from a liability suit to apply that loss against tacxable income earned during the ten previous years. It would provide for immediate tax refunds.
The amemdment would help ensure that the firm would realize promptly the tax benefits of deducting the loss and that a person injured by a defective product would be able to collect a liability award.
The administration supported this proposal rather than another that would permit businesses current tax deductions for contributions to product liability self-insurance trusts. Kreps said the carry-back proposal "would result in a better use of business capital."
The administration said the carry-back amendment is a short-term solution to the product liability problem. For the long-term, it intends to examing several areas, including uncertainties in the legal system, insurance rate-making practices and the setting up of a government clearing house to distribute product risk information.
To help solve legal uncertainties, the administration has directed that a model product liability law be prepared, which could beenacted by the states.