What are the Federal Tax Rules which govern the use of Structured Settlements?
In the Periodic Payment Settlement Act of 1982, the U.S. Congress adopted specific tax rules to encourage the use of structured settlements to resolve physical injury tort cases. Internal Revenue Code Section 104(a)(2) was amended to clarify that periodic payments constitute damages which are tax-free to the injured party. Furthermore, Internal Revenue Code Section 130 was adopted to provide a process where injured parties could receive a stream of income into the future from a financially secure and experienced institution through a “Qualified Assignment”. In order to protect the public, Congress specified in IRC Section 130 the requirements to establish a qualified assignment: • The Assignee assumes the liability from the defendant and/or their insurer • The payments are fixed and determinable • The payments cannot be accelerated, deferred, increased or decreased, or otherwise altered after the agreement is finalized • The Assignee’s obligation is no greater than that of the defendan
