The Structured Sales Authority

Structured Installment Sale Opportunity To Mitigate Capital Gains Exposure Created By IRC 121 Amendment under Housing and Economic Recovery Act of 2008

The Housing and Economic Recovery Act of 2008 ("HERA"),  Public Law 110-289 , HR 3221, was signed into law on July 30, 2008. Included in HERA is an amendment to Internal Revenue Code Section 121 ("IRC 121") designed to preclude taxpayers from excluding the gain on the sale of a residence attributed to periods of "nonqualified use" (any period after 2008 when the residence is not used as a principal residence).

Effective January 1, 2009, the purpose of the IRC 121 amendment was to close the loophole that permitted a taxpayer to sell a primary residence and utilize the full home sale capital gains tax exclusion ($250,000 for single, and $500,000 for married taxpayers); then convert an existing vacation or rental property into a primary residence, satisfy the two of the five year residency requirement, and then sell the new primary residence and again utilize the full home sale capital gains tax exclusion.

Under the new IRC Section 121, a "nonqualified use' period will exclude:

1.  the 5-year period after the last date that the residence is used as a principal residence;
2.  any period (not in excess of an aggregate of 10 years) during which the taxpayer serves on military duty; and
3.  any period of temporary absence (not in excess of an aggregate of 2 years) resulting from a change of employment, health conditions, or other unforeseen circumstances (death of a spouse, etc.) specified by the Secretary. In addition, the exclusion will not apply to the extent the gain is attributable to depreciation allowed for rental or business use of a principal residence for periods after May 6, 1997.                                                                   The closure of the loophole means an added capital gains exposure which may be mitigated, for some tax payers, through the use of a structured installment sale (a/k/a "structured sale). Click here for our structured sales flow chart.

For more information about structured installment sales please contact John Darer at 888-325-8640

Installment Sales, Structured Sales and the 2008 Elections

Installment Sales between related parties for amounts under $5,000,000 ($10,000,000 married couple) present an interesting financial planning option if Barack Obama is elected President. Obama plans to maintain Bush tax cuts, except for those earning in excess of $250,000 annually. it is expected that there will be increases in the capital gains and income tax rates.

An increase in capital gains tax rates will make structured sales more attractive to sellers of low basis/ high capital gains properties and businesses. It will however give those selling pause in engaging such transactions today. In some cases it may make more sense to pay the taxes now at the lower rate, rather than defer recognition and then pay a higher tax later. In doing so there is a recognition that the buyer is only obligated to make the installment payments when due.

Each person's situation is unique and calculations should be performed by and discussed with a financial professional.

For those with existing installment sales, IRC 453(d) states that a taxpayer is allowed to elect out of their installment sale and pay the tax now. The individual is required to make an election by October 15th of the following year on an extended return, this giving the potential for hindsight on their installment sale. A taxpayer will have time to assess their situation in light of any tax changes that have occurred related to  tax rates.

Mom and Pop Flop With Bogus "Exit Strategy" Scheme

A recent IRS Private Letter Ruling exposes a couple's bogus "exit strategy" promotion scheme. This has nothing to do with a legitimate structured sale, but it is instructive of what kind of bogus schemes are out there and what not to do.

The scheme involved the exhange of Real Estate, securities and annuities to what was supposed to be a charity. The so-called "Tax Deductible Installment Plan" was a product that purportedly promised those solicited all of the following:

• generous income tax deduction
• tax favored income
• elimination of portion of any capital gains
• a guaranteed income that grows every year
• estate tax reduction

The IRS observed that the "activities of primarlily performing services for individuals who wish to exhange assets for annuity plans as an estate planning tool" and thus the company (i.e. Mom and Pop) were performing commericial services for these individuals. Here's the kicker..."Because less than one half of one percent of the funds received go to charity, this does not render your activities as charitable".

In its final determination on PLR 200818023 released May 2, 2008, the IRS stated " Because you do not qualify for exemption under 501(c)(3), donors MAY NOT deduct contributions to you under Section 170"

"you must file Federal income tax returns for the years listed within 30 days of this letter".

To quote Lynyrd Skynyrd "Oo-ooh That Smell" ( performed by Glass House, ironically at a "charity fund raiser")

Allstate Cos. Florida Suspension No EFFECT ON STRUCTURED SALES

DealFlow Media reported on its Structured Settlements Wire last Tuesday that the insurance commissioner in the state of Florida has announced that he will resume the suspension of the Allstate Cos. to write new business in the state until the company is in full compliance with subpoenas that were issued in October. THEN, on Monday April 21, 2008, the First District Court of Appeals in Tallahassee denied Allstate's motion for a rehearing.

The suspension applies to the following Allstate companies, and it only suspends the companies from writing new business in Florida.

Allstate Floridian Insurance Co.

Allstate Indemnity Co.

Allstate Property & Casualty Insurance Co.

Allstate Insurance Co.

Allstate Floridian Indemnity Co.

Allstate Fire and Casualty Insurance Co.

Encompass Insurance Co. of America

Encompass Indemnity Co.

Encompass Floridian Insurance Co.

Encompass Floridian Indemnity Co.

PLEASE NOTE THAT:

While the appearance in the DealFlow Media Structured Settlements Wire might lead one to believe that the commissioner's action affects Allstate's structured settlement operation, the fact is that NONE OF THE ABOVE COMPANIES WRITES STRUCTURED SALE ANNUITIES!

Allstate Life Insurance Company is the  annuity issuer underwriting Allstate structured settlements, Allstate non qualified assignments and Allstate structured sales annuities in the State of Florida.

Prudential announcement leaves Allstate International Assignments the only entity accepting assignments for Structured Installment Sales

Prudential Insurance Company of America ("Prudential), one of the two entities that issues Structured Sales annuities to fund installment sales obligations has been working on requesting a Private Letter Ruling (PLR) for Structured Sales. Prudential recently had a pre-filing Hearing with the U.S Internal Revenue Service, a crucial step in this process.

It announced today by Pruco Assignments Corporation, the Barbados based entity that takes on installment sales obligations funded by Prudential structured sales annuities, "that as a result of the progress at the Hearing, Prudential has decided to suspend the underwriting of annuity contracts for structured sales to enable them to reassess the nature and structure of the annuity contract when used for this purpose. This moratorium is indefinite at the present time.In light of this, Pruco Assignment Corporation will NOT be accepting assignments for Structured Sales transactions until further notice".

Both Pruco and Prudential stated that they remain committed to the structured sales market, and are hopeful that shortly, they will again be able to facilitate Structured Sales assignments.

This leaves Allstate International Assignments, Ltd as the only entity that will accept the assignment of installment sales obligations funded by structured sales annuities.

Structured Sales Annuity Issuer Gets "Fitched" Up

Fitch Ratings services has upgraded the life company group of Prudential Financial, Inc. from AA- to AA. One of Prudential's group of life companies, The Prudential Insurance Company of America, is one of the leading issuers of structured settlement annuities, structured sales annuities, structured attorney fee annuities and other non qualified periodic payments.

This has been a banner year or so for accolades involving Prudential. Last year they got their A+ back from AM Best. Earlier this year Prudential pipped Northwestern Mutual as the most admired life insurance company by its peers. The company seems to be moving in a very positive direction.

Financial security ratings such as those provided by Fitch are helpful to purchasers of annuities involving payment obligations of long duration.

Structured Sale Flow Chart

Click  Download 4StructuresFlowChart.pdf for an easy to read structured sale flow chart, which describes the structured sale process. This structured sale flow chart may be helpful to buyers and sellers as well real estate brokers, business brokers, and their lawyers better understand a structured sale.

The important point to take from the flow chart is that a structured sale simply improves upon the well established process of installment sales. You can do an installment sale without it being a structured sale. However, if an installment sale of your real estate or your business is desirable AND you have a buyer who has no problem with financing then structured sales might be for you, or your client.

Structured Sales Defer Capital Gains BUT do not eliminate them as one website's name implies!

Can the name of a website be misleading in the structured sales area? You betcha! 

One such website is called nocapital.gains.info, a slick looking site which, according to whois records, is registered to Eric Halperin of 1133 6th Ave. Suite 203 in San Diego, CA. The name "nocapitalgains.info" suggests that structured sales mean no capital gains which is untrue and therefore misleading.

Structured sales are advantageous as a means to defer capital gains. However, structured sales DO NOT eliminate them.

The nocapitalgains.info website contains at least one podcast featuring a structured sales broker known to this author although, it is not known of the relationship between the structured sales broker's firm and Mr. Eric Halperin of 1133 6th Ave. Suite 203 in San Diego, CA.

Prudential Financial ranked #1 by its global peers

Following a survey of its peers in the global life insurance industry, Prudential Financial, parent of structured sale annuity issuer Prudential Insurance Company of America, has unseated perennial leader Northwestern Mutual as the 2007 top global insurance company-life and health category by Fortune magazine**. Mighty Northwestern Mutual has led this survey of industry peers for many years so this is just an incredible feat for Prudential.

Fortune's annual survey rates companies by their peers in the following categories:

Innovation
People management
Use of corporate assets
Social responsibility
Quality of management
Financial soundness
Long-term investment
Quality of products/services	.

Who Writes Structured Sales Annuities?

"Who Writes Structured Sales Annuities?" is a question on every prospect's mind when contemplating a structured sale. Be an educated buyer and learn how to shop for structured sales annuities, because it isn't at all like hondling for "tchotchkes" at a flea market in Tijuana!

Fortunately the annuity issuer list is not very long so it won't take long to shop for structured sale annuities on price. The three annuity issuers who wrote structured sales annuities are Allstate Life Insurance Company, Allstate Life Insurance Company of New York and The Prudential Insurance Company of America. These structured sales programs use the non qualified assignees, Allstate International Assignments, Ltd. and Pruco Assignment Corporation respectively. So, please don't waste your time calling 20 brokers because, they will all be quoting from the same places. Don't try to be sneaky either and not give your name. The people you call will know you are spinning their wheels and may not take you seriously. Out of courtesy to others who are also shopping for structured sales annuities, please try to limit the number of places you call to avoid choking up quoting capacity and speed at the annuity issuers. The structured sales process can be efficient if you let it be.

While price is a driver, it is not the only consideration with structured sales annuities. Work with who you feel comfortable with. Ask questions and consider the confidence in the answers you receive. Knowledge is an important currency in the area of structured sales annuities.