Why did viatical settlements develop a bad reputation in the late 1990’s?
Congress changed the income tax laws in the mid 1990’s to allow proceeds paid in a viatical settlement to be exempt from income tax. This was done to allow AIDS patients access to cash for treatment during their final 24 months. The unexpected outcome was that it led to abuse in both false reporting on income tax returns and a cottage industry of fraudulent applications for policies to cash in on this tax advantage. These false and fraudulent practices were exposed when the introduction of highly effective AIDS medications materially extended the life expectancy of many AIDS patients. This lead to lawsuits by investors who had purchased policies or portions of pools of policies that did not mature in the expected 24-month period.
Congress changed the income tax laws in the mid 1990’s to allow proceeds paid in a viatical settlement to be exempt from income tax. This was done to allow AIDS patients access to cash for treatment during their final 24 months. The unexpected outcome was that it led to abuse in both false reporting on income tax returns and a cottage industry of fraudulent applications for policies to cash in on this tax advantage. These false and fraudulent practices were exposed when the introduction of highly effective AIDS medications materially extended the life expectancy of many AIDS patients. This lead to lawsuits by investors who had purchased policies or portions of pools of policies that did not mature in the expected 24-month period.
