"Structured settlement" is defined for tax purposes in IRC Section 5891(c)(1) according to Patrick HIndert TSSG Managing Director and co-author Structured Settlements and Periodic Payment Judgments. (from a November 2010 Powerpoint posted on the Internet as of 1/14/2011 6pm EST). But is it?
FACT:The definition that appears in IRC 5891(c)(1) is immediately preceded by the notation " for the purpose of this section (i.e. for the purposes of this section only)
FACT: IRC 5891 sets forth a 40% excise tax imposed on purchasers of structured settlement payment rights which is imposed on the factoring discount if court approval is not obtained before structured settlement payment rights are transferred. To wit...
IRC 5891(a) Imposition of tax
Hindert's assertion appears to be based on the following with respect to the definition of "structured settlement" at IRC 5891(c)(1)
- It is a definition
- It does appear in the Internal Revenue Code
- It is the only definition of "structured settlement" that appears in the Internal Reveneue Code, despite the express disclaimer of what the definition is exclusive to.
- The internal Revenue Code is the main body of domestic statutory tax law of the United States of America.
Once again, the definition of structured settlement that appears there is clearly denoted to be for that section only. Had it been intended to be a general definition there would have been no disclaimer. Moreover, there are financial transactions or products currently referred to as "structured settlements" that do not fall within the expressly limited definition that appears at IRC 5891 (C)(1).
8 years ago Hindert, by way of the SSP, attempted to sell an illogical mischaracteriziaton of IRC 5891(c)(2) of the Internal Revenue Code as granting an absolute right for plaintiffs to receive structured settlement payments, as opposed to payment rights that are created by way of the structured settlement (that are eligible to be transferred with tax preference, subject to certain conditions, by virtue of IRC 5891). Whether or not the former is a meritorious outcome is not the subject of this debate.
As you can see from the structured settlement flow chart below, the rights to receive payments under a structured settlement are created in step 1, when the plaintiff releases the Defendant/Insurer or Qualified Settlement Fund Trustee in exchange for a promise to make future periodiic payments. Without the consideration being for periodic payments there would be no obligation to make such payments and therefore step 2 cannot occur, since there are no payment rights created and there would be no payment obligation to transfer to the qualified assignee.