Congress Should Amend IRC130(c)(2)(D) to include all of IRC 104(a)

by John Darer® CLU ChFC MSSC CeFT® RSP CLTC

The welcome news that New Hampshire Senator Kelly Ayotte has introduced Senate Bill 2377, the “Don’t Tax Our Fallen Public Safety Heroes Act.” Senator Ayotte’s bill would amend Section
104(a)(4), to apply to public safety officers and their dependents should include a companion amendment to IRC 130,the section that refers to qualified assignments .

Currently, 104(a)(4) grants exemption for “amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country or in the Coast and Geodetic Survey or the Public Health Service, or as a disability annuity payable under the provisions of section 808 of the Foreign Service Act of 1980.” The pending  Bill would expand the exemption to public safety officers and their dependents.

CurrentlyIRC 130 (c) reads as follows

For purposes of this section, the term “qualified assignment” means any assignment of a liability to make periodic payments as damages (whether by suit or agreement), or as compensation under any workmen’s compensation act, on account of personal injury or sickness (in a case involving physical injury or physical sickness)—

(1) if the assignee assumes such liability from a person who is a party to the suit or agreement, or the workmen’s compensation claim, and

(2) if—

(A) such periodic payments are fixed and determinable as to amount and time of payment,

(B) such periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments,

(C) the assignee’s obligation on account of the personal injuries or sickness is no greater than the obligation of the person who assigned the liability, and

(D) such periodic payments are excludable from the gross income of the recipient under paragraph (1) or (2) of section 104 (a).

By amending IRC 130 to include IRC 104 (a)(3),  the proposed amended IRC 104(a)(4) and IRC 104(a)(5),  more comprehensive and practical settlement planning and financial planning solutions can be provided to the injured parties.  Structured settlements have worked well for over 30 years and have strong Congressional support, why not expand the application?    Why shouldn't a dependent of a fallen public safety hero be able to have a structured settlement set up to help take care of their future?

A putative amendment would simply change IRC 130(c)(2)(D) to read as follows:

"such periodic payments are excludable from the gross income of the recipient under  section 104 (a)".

IRC 104(a)(3) "amounts received through accident or health insurance (or through an arrangement having the effect of accident or health insurance) for personal injuries or sickness (other than amounts received by an employee, to the extent such amounts

(A) are attributable to contributions by the employer which were not includible in the gross income of the employee, or

(B) are paid by the employer)";

IRC 104(a)(5) "amounts received by an individual as disability income attributable to injuries incurred as a direct result of a terroristic or military action (as defined in section 692 (c)"