by John Darer CLU ChFC MSSC CeFT RSP CLTC
Qualified Settlement Funds Advances and Updates, a recent presentation by tax attorney Robert Wood and Eastern Point Trust Company CEO Glen Armand
raises doubts about the viability of a master qualified settlement fund. A multi-case master qualified settlement fund is referred to as a fable, a fictitious narrative or statement, according to Merriam-Webster.
Concerning the tax treatment of litigation settlements and judgments, Robert W. Wood is perhaps the preeminent tax lawyer in the United States. Wood's tax planning and tax controversy work is broad-based, including tax opinions, audits, appeals, rulings, protests, appellate conferences, closing agreements, Tax Court, District Court and appellate court litigation. In addition, Wood is a frequent expert witness on tax matters in civil cases, in disputes over independent contractor versus employee classification, class actions, and tax and accounting malpractice cases.
He has consistently been rated among the top ten tax lawyers in the United States by United States Lawyer Rankings, was awarded the State Bar of California's Judson Klein Award, is featured in numerous who's who and best lawyers publications. The author of more than 30 tax books, including Qualified Settlement Funds and 468B, published by the Tax Institute. Wood writes tax columns for Forbes.com, and writes regular articles for Tax Notes and other publications. He has often appeared in the media discussing tax issues.
Glen Armand is Chief Executive Officer and Chief Compliance Officer of Eastern Point Trust Company in Warrenton Virginia
The Chief Points Made by Wood and Armand.
26 CFR §1.468B-1(c)(2) Says
“It is established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability -…”
By regulation and ruling the IRS has demonstrated that eligibility requires commonality among the claims for which the purported QSF was established to resolve. Commonality of representing law firm, defendant, or professionals working on the matter is unlikely to satisfy this requirement.
Buffalo New York settlement planning firm Milestone Consulting advertises a "National master qualified settlement fund, which the Milestone CEO purports "allows lawyers settling cases now, to ajoinder (sic) to the existing QSF, alleviating the issue of having to get a court order in their particular case or inventory of cases". Milestone is heavily marketing this fund to trial lawyers across the United States. Milestone claims that "QSF regulations only require that the creation and formation of the qualified settlement fund be established pursuant to court order, which, of course, ours is".
Despite what Milestone claims here are the requirements set forth in the statute:
26 CFR §1.468B-1(c) Requirements. A fund, account, or trust satisfies the requirements of this paragraph (c) if -
(1) It is established pursuant to an order of, or is approved by, the United States, any state (including the District of Columbia), territory, possession, or political subdivision thereof, or any agency or instrumentality (including a court of law) of any of the foregoing and is subject to the continuing jurisdiction of that governmental authority;
(2) It is established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability -
(i) Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (hereinafter referred to as CERCLA), as amended, 42 U.S.C. 9601 et seq.; or
(ii) Arising out of a tort, breach of contract, or violation of law; or
(iii) Designated by the Commissioner in a revenue ruling or revenue procedure; and
(3) The fund, account, or trust is a trust under applicable state law, or its assets are otherwise segregated from other assets of the transferor (and related persons).
New Jersey attorneys Thomas D. Begley, Jr. and Angela E. Canellos also cast doubts in this practice tip from Chapter 15 their Special Needs Trust handbook emphasizing the "related series of events" issue:
"Structure brokers in mass tort cases are often anxious to force the defense broker out of the picture. It has been suggested that one way to accomplish this , particularly in small cases, is to establish a poled QSF. It is authors' opinion that a pooled QSF would not be effective, because the QSF must be established to resolve or satisfy one or more contested or uncontested claims, that have resulted from an event (or related series of events)
"If you need tax advice, Robert Wood is the most credible and professional authored tax attorney expert in the country when it comes to lawyers fees, QSFs, and attorney fee deferral" John T. Bair Milestone Examiner, Buffalo NY May 14, 2018
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