Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

Qualified Settlement Fund Accounting to Be Addressed By IRS 2023-24 Priority Guidance Plan?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

In September 2023, the United States Office of Tax Policy and Internal Revenue Service released  the 2023 — 2024 Priority Guidance Plan, addressing various accounting method issues as well as other provisions.

The plan includes 237 guidance projects, which the Treasury and IRS are seeking to complete by June 30, 2024. For the first time in 14 years, qualified settlement funds are on the agenda. But it's not about single claimant qualfied settlement funds. According to an October 10, 2023 publication of the accounting firm of Ernst & Young** "The IRS National Office informally has expressed interest related to the establishment or structuring of qualified settlement funds. The addition of this topic to the Priority Guidance Plan may be reflective of an increased focus in this technical area".

This author understands that the focus is on potential accounting abuses of qualified settlement funds and not structured settlements.  This is a developing story and will be amplified as more beomes available.

If one had to speculate however, here are some area of concern about the potential for abuse on the subject of Firmwide Qualified Settlement Funds.

• How have Firmwide QSFs beeen marketed to personal injury law firms across the United States of America? 
• How are Firmwide QSF's being administered? How much discretion does the QSF administrator have?
• What sort of things about accounting issues related to Qualified Settlement Funds might pique the interest of the United States Treasury and the Internal Revenue Service?

Following are links to two blogs about FirmWide QSFs from 4structures' Settlement News Network blog that may be worth re-reading:

Firmwide QSFs Debunked | Firmwide Qualified Settlement Fund (4structures.com)

Firmwide QSF | What if it's NOT a QSF? What are the Consequences? (4structures.com)

Other Articles on QSF accounting and tax Issues

Qualified Settlement Funds Facing Employment Taxes - 5/11/2020 (woodllp.com)

**IRS and Treasury issue 2023 - 2024 Priority Guidance Plan, addressing various accounting method issues (ey.com)\

Last updated March 20, 2024

 

 

 

Can a Qualified Settlement Fund Trustee or Administrator Steer Business To or Through Related Companies?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

As more settlement planners have ventured into qualified settlement fund administration in the hope of spinning up the money funnel for big insurance and investment commissions, perhaps it's time for ethical questions to be raised.  Can one wear too many hats?

Can one wear too many hats?

Scenario     Administrator of a Qualified Settlement Fund under 26 USC § 1.468B-1 1-468B Administrator is a settlement planner who wears many hats, including one or more of a structured settlement brokerage, a qualified assignment company, an insurance brokerage, an investment advisory firm. lien negotiation firm, qualified assignment company. money management and/or a structured settlement secondary market origination firm. 

Even though I'm not the youngest, it seems appropriate to ask "The Four Questions" in this week of all weeks.

Question 1.  Can a QSF Adminstrator that has direct or indirect common ownership with a qualified assignment company and insurance brokerage ethically refer business to his/her/its business family member structured settlement brokerage, which will make a commission on the placement of the annuities?

Question 2  Can a QSF Adminstrator that has direct or indirect common ownership with a qualified assignment company and structured settlement brokerage ethically make a qualified assignment to his direct or indirectly controlled qualified assignment company?

Answer: Direct or indirect ownership of both could violate Rev. Proc. 93-34 and invalidate the qualified assignment.  See Rev. Proc 93-34 Sec 4.01(5) ["A designated settlement fund or a qualified settlement fund will be treated as "a party to the suit or agreement" within the meaning of section 130(c)(1) of the Code if
each of the following requirements is satisfied...the assignee is neither controlled by, nor controls, directly or indirectly, the designated or qualified settlement fund. For purposes of this section 4.01(5), examples
of control include an assignee that is a corporation the stock of which is owned by the
fund or an assignee that is a trust the trustee of which is the administrator of the fund"] 

Question 3  If the QSF Administrator learns that the family of one of the QSF plaintiffs has a relationship with another settlement planner, can a QSF Adminstrator that has direct or indirect common ownership with a qualified assignment company and insurance brokerage ethically insert himself/herself in the frame and demand compensation from the other settlement planner?

Question 4 Is a QSF Adminstrator a fiduciary?

I'm interested to hear what people think.  Write to me privately and I will compile the answers.