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".
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