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Law Firm Network Advises Against Using QSF Involving Single or Derivative Claimants!

by John Darer CLU ChFC CSSC RSP

Tab H. Keener an attorney with Dallas, TX defense law firm Downs Stanford PC, has penned "What is a QSF and When It Should be Used?" which was posted on the Primerus website November 11, 2009. Primerus is an international network of top-rated, independent, law firms, in over 100 cities worldwide.

Keener does a fairly good job of explaining what a qualified settlement fund ("QSF") is and includes some caveats about them in cases involving single claimants. Most noteworthy from the standpoint of plaintiff lawyers and settlement planners is that Keener suggests to other Primerus network defense lawyers that there is no comfort to be had by defendants and insurers in plaintiffs and their attorneys providing additional indemnification.

Here's the quote

"To alleviate these problems claimants and their attorneys may suggest providing additional indemnification and promise to execute a Compromise Settlement Agreement.  However, no revenue ruling or regulation clearly states that a QSF may be used when dealing with a single claimant or single injury involving derivative claimants.  A QSF is often suggested by claimants and their attorneys to bypass an approved list of annuity companies or in an effort to cut out brokers suggested by defendants and their insurers.

In conclusion, until additional regulations are promulgated, clearly stating that a QSF may be used with single or derivative claimants, counsel should be wary to agree to use a QSF.  During settlement negotiations, counsel should be vigilant to ensure that a QSF is not part of any settlement agreement among the parties until these issues are resolved". 

According to the Primerus website, lawyer candidates for membership in Primerus must have the maximum AV rating from Martindale-Hubbell, the peer review rating source that lawyers use to find other lawyers. Further, a law firm must submit to a rigorous evaluation which includes candid assessments from judges, fellow attorneys, current and former clients, bar associations, and malpractice insurance carriers. Firms must also attest to their commitment to the exacting standards of the Six Pillars of Primerus Quality: Integrity, Excellent Work Product, Reasonable Fees, Continuing Legal Education, Civility, and Community Service. They say "it doesn't end there". Primerus firms are audited annually to ensure that they continue to be the "best of the best," year after year.

More information on Qualified Settlement Fund or QSF

What Is A Qualified Settlement Fund §468B-1 | When to Use QSFs (4structures.com)

Single-Claimant Qualified (468B) Settlement Funds?

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468B Single Claimant Qualified Settlement Fund OFF Treasury Priority Guidance Plan After 6 Years

by John Darer CLU ChFC CSSC RSP

Has there been too much "crying wolf" about Treasury guidance concerning the Single Claimant Qualified Settlement Fund?

Here's my February 9, 2009 post  "Qualified Settlement Fund Use in Single Claimant Cases"

Make no mistake, the announcement that "the tax treatment of single-claimant 468B qualified settlement funds (QSF) has been eliminated from the list of tax priorities in the Priority Guidance Plan for 2009-2010 on November 24, 2009 by the United States Treasury Department and the Internal Revenue Service" is a real "howler" to some.

As S2KM and TSSG's Patrick Hindert admits "the purpose of the Priority Guidance Plan is to focus United States government resources "on guidance items that are most important to taxpayers and tax administration."

Patrick Hindert's fading star is never more evident in a blog post commentary dated November 28, 2009, about the aforementioned announcement entitled "U.S.Treasury Priority Guidance Plan 2009-2010".

1. He rehashes old arguments that the U.S. Treasury has apparently decided not to address, after 6 years of being on the priority guidance plan.
2. He cites a 3rd year law student with no bona fides as a tax authority and labels him a "QSF analyst".
3. He cites attorney Dick Risk who he says "interprets the decision to remove the single claimant 468B project from the Priority Guidance Plan as evidence that sufficient guidance favoring single claimant 468B QSFs already exists. Risk points to I.R.C. § 7805(d) which requires the Treasury Secretary to “prescribe all needful rules and regulations for the enforcement of [the Internal Revenue Code].” Risk concludes that Treasury’s decision is an acknowledgment that additional guidance is not “needful.”  Wonder why Risk and others have spent 6 years writing why Treasury should issue guidance?

All the above brought to you by some of the same "cast of characters" who previously tried to broaden the definition of structured settlement in IRC 5891(c)(1) to say that it ostensibly establishes rights of plaintiffs to receive structured settlements, despite the Tax Code expressly stating that the definition solely applies to that specific Tax Code section.

This author is not denying that there are merits to the idea of a single claimant 468B qualified settlement fund under certain circumstances. Its proponents however have failed strategically. Perhaps it's time to go back to the stable and saddle up a NEW horse.

Hindert's shameless in desperately trying to opine that there's wiggle room in a statement by San Francisco tax attorney Robert W. Wood. Wood in a recent text wherein Wood suggests that single claimant QSFs be avoided without further clarification. Hindert cites to Wood's "alleged belief" that the regulations "seem to allow the possibility of the single claimant QSF". This lack of academic foundation is both astonishing and disingenuous given that only months ago HIndert was "talking trash" behind Jeremy Babener's dissipation paper. While said paper has been interpreted as an attack on the structured settlement tax subsidy based on alleged lack of empirical evidence to prove 90% of injury victims blow their money in 5 years, Hindert seems to abandon empirical evidence when it suits him.

Pay no attention to this "blatteroon".

 

Qualified Settlement Fund Article by Robert Wood

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Robert Wood, a tax attorney based in San Francisco, CA has written an interesting article on Qualified Settlement Funds that appeared in the Los Angeles Daily Journal on July 23, 2009. Wood believes the time has come for the QSF. Wood does not address the controversial single claimant issue in this article.

Wood's treatise Qualified Settlement Funds and Section 468B published by The Tax Institute is a valuable on the subject. He is also the author of Taxation of Damage Awards and Settlement Payments and numerous other articles on issues of taxation.

Robert Wood's article Download Qualified_Settlement_Funds Robert W. Wood

More information on What Is A Qualified Settlement Fund §468B-1 | When to Use QSFs (4structures.com)

"Relation Back Election QSF" Does your Settlement Planner Have Enough Errors and Omissions Coverage to Protect You and Your Client?

San Francisco tax attorney Robert W. Wood has penned an interesting article in the February/March 2008 edition Journal of Tax Practice and Procedure entitled "Electing 468B Trust Treatment for Lawyer Trust Accounts After Receiving Settlement Proceeds".

Relation Back Election

Wood suggests that it is possible to "save the day" using what is known as the "relation back election" after money has changed hands from defendant to the plaintiffs attorney's trust account (presumably in exchange for a general release which includes a stated sum and "the receipt and sufficiency of which is hereby acknowledged"). He seems to suggest that the "relation back election" overrides constructive receipt.

Isn't Wood's title and the use of terms such as "retroactive fix" and "putting spilled milk back in bottle" goading the IRS to come get you?

Should plaintiff lawyers be concerned about the "qualified settlement fund jockey" (QSF jockeys) among my industry's brethren using the Wood article as a lever to convince plaintiff attorneys that its OK to use this on a wholesale basis. Don't be so sure that it is. Wood himself indicates that it is better to have a qualified settlement fund set up beforehand. Wood himself adds the disclaimer that " this discussion is not intended as legal advice and cannot be relied upon for any purpose without the services of a qualified professional". Is a "qualified professional" a settlement planner who probably doesn't have enough Errors and Commissions coverage in the aggregate to cover the potential exposure of your case and the umpteen other cases the settlement planner has recommend this strategy to?

Wood admits that obtaining the defendant's signature on the required documents for a "relation back election" can be difficult. He suggests that many defendants can be won over to sign (claiming such documents can be "innocuous"- whatever that is meant to imply) when made aware of the plaintiff's tax planning opportunities.

The old adage of one didn't plan to fail- one failed to plan come into play. By retaining a settlement planner as early on in the case as possible, many planning issues can be be discussed, problems addressed in advance and solutions explored.