by John Darer® CLU ChFC MSSC RSP
In issuing a Private Letter Ruling, the IRS seems to have resolved trouble about commutations that was stirred up in a Christmas past by a Dec 2006 published legal opinion that was purportedly done at the behest of the factoring industry. At that time a structured settlement commutation was offered by a number of the life insurers issuing structured settlement annuities, in a variety of forms. A number of the factoring companies were reeling when the life companies actually bettered the liquidity offers to their own annuitants, often at the last minute when the factoring companies had already front loaded expenses. As a result of the published legal opinion a number of life insurers pulled out of formal or informal commutation programs. Allstate, with its AFEN Exchange and Symetra with its own factoring company (Clearscape Funding Corporation) remained.
Symetra Assigned Benefits Service Corporation is a structured settlement assignment company.
Symetra Assigned Benefits Service Corporation also factors structured settlements through Clearscape another Symetra subsidiary.
On May 1, 2009 the IRS issued Private Letter Ruling 200918001 to Symetra, in response to a request for a ruling from Symetra as to whether payments it will make to Claimant pursuant to a structured settlement factoring transaction described in § 5891(b)(1) of the Internal Revenue Code are subject to the information reporting requirements of § 6041.
IRC 6041(a) says , with respect to payments made of $600, or more:
"All persons engaged in a trade or business and making payment in the course of such trade or business to another person, of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income (other than payments to which section 6042 (a)(1), 6044 (a)(1), 6047 (e), 6049 (a), or 6050N (a) applies, and other than payments with respect to which a statement is required under the authority of section 6042 (a)(2), 6044 (a)(2), or 6045), of $600 or more in any taxable year, or, in the case of such payments made by the United States, the officers or employees of the United States having information as to such payments and required to make returns in regard thereto by the regulations hereinafter provided for, shall render a true and accurate return to the Secretary, under such regulations and in such form and manner and to such extent as may be prescribed by the Secretary, setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment".
The ruling seems to put to rest the issue of whether a qualified assignment company can safely invoke IRC 5891 in commuting or factoring a portion of an annuitant's structured settlement to reflect the changing conditions in the annuitant's life. The annuitant does not have to give up all of the rights to all of the periodic payments.
Will this ruling be notice to life companies that they can start offering reasonable commutations and restructuring?
What will be the reaction to the ruling from the factoring companies?
A copy of the IRS Private Letter Ruling can be found by clicking below