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May 03, 2010

Constructive Receipt: Mixing Apples and Oranges

by Structured Settlement Watchdog

Settlement Professionals/SPI seems to have things mixed up concerning constructive receipt as it applies to structured sales (which it dubs the  "Ensured Structured Sale")**

SPI:  "The Doctrine of Constructive Receipt taxes income before that income is actually received"

Comment: Governments tax income not tax doctrines. This certainly applies in the United States.

SPI: "It's important to note that Constructive Receipt doctrine only affects your ability to obtain a tax-exempt structured settlement annuity, as part of your settlement plan".

Comments: 

1. It is important to differentiate between a settlement plan, a financial plan and/or an "exit strategy" plan. A "settlement plan" generally does not apply to structured sales unless the injured party in a law suit, or their attorney, is selling low basis/high value property. A settlement plan, incorporating a structured sale, might well apply in a divorce settlement scenario.

2. A structured sale annuity IS NOT tax exempt. Provided  the characteristics of IRC 453 apply, a structured installment sale should help the business or property seller defer capital gains taxes. Like a regular installment sale, when each installment is made, a portion of it represents return of basis in the property, part represents capital gain and part represents ordinary income.

SPI: "Myths That Do Not Trigger Constructive Receipt" (Relating to Structured Sales)

  • Negotiating for payment of your full settlement to a QSF, subject to further Court control and oversight.
  • You have been awarded a verdict, however the defendants have appealed to a higher court for review.
  • Negotiating for multiple annuity issuers to share responsibility for your payments.
  • Negotiating for all security interest in any annuities (versus being a general creditor of the annuity issuer)".

Comments:  This appears to just be a cut and paste job from structured settlement annuities. None of these scenarios applies to a structured sale. With respect to the third bullet point only Allstate Life Insurance Company and Allstate Life Insurance Company of New York currently offer this product.

Mind the Crack, Jack!

**as of May 3, 2010 8:00pm EDT

Posted at 09:06 PM in Allstate International Assignments Ltd.NQA, Allstate Life Insurance Company, Cleaning Up "The Structured Settlement Neighborhood", Constructive Receipt, Ensured Structured Sale, Financial Literacy, IRC 453, Settlement Professionals, Inc., Structured installment sales, Structured Sales, Structured Sales 101, Structured Settlement Watchdog® |

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