On July 16, 2008 PPI Cash, a factoring company out of Lake Worth , Florida has published a blog called "Non- Qualified Annuities Rule" offering tips "to structured settlement annuity recipients and lottery winners" ,in following up to the recent IRS Private Letter Ruling obtained by IFS. The post needs some clarification to correct some errors in fact and context.
PPI Cash: In a nutshell (which is hard to do with cases of these types) the non-qualified annuity can be used in a taxable damage case for the first time.
FACT: Non qualified structured annuities have been used for many years. The PLR simply clarifies the tax treatment governing a specific set of facts, involving an employment related settlement, which are set forth in the ruling.
PPI Cash: For those who don’t know, the non-qualified taxable annuity is one that is outside of any pension plan.
FACT: In this context a non qualified annuity is one that is used to fund payment of damages that do not fall within the tax exemption qualifications of IRC 104(a)(1) or 104(a)(2)
PPI Cash: Employment cases are notorious for dragging on and on in court while racking up plenty of legal fees. Once agreement is reached the person then at least has the option of selling the structured settlement to get the cash due them quickly.
QUESTION: Is PPI suggesting that a structured settlement agreement be reached and THEN the person immediately contact PPI or any other factoring company to sell the structured settlement? I certainly hope not.
- Don't over structure! Make sure there is some liquidity! Avoid unnecessary factoring.
- A non qualified assignment or non qualified structured settlement offers a solution to a wide variety of disputes or claims for damages that do not fall within the realm of damages under IRC 104(a)(1) or 104(a)(2). For more information please click here
- The tax exemption to structured settlement rights purchasers under IRC 5891 does not apply to non qualified structured settlements
- Transferability might invalidate the entire non qualified structured settlement, since cashing out even a portion would seem to violate the cash-equivalency doctrine. According to an IRS Audit techniques guide published in 2005, "the cash equivalency doctrine provides that, if the right to receive a payment in the future is reduced to writing and is transferable, such as in the case of a note or a bond, the right is considered to be the equivalent of cash and the value of the right is includible in gross income".
MESSAGE TO FACTORING INDUSTRY: if you are going to hold yourself out as an authority in a putative effort "to take up shelf space" on the search engines at least do your homework