Robert Wood, a prominent San Francisco based tax attorney gave a 2006 Christmas gift, to factoring companies by opining that a structured settlement factoring transaction under IRC 5891, performed by an entity other than a 3rd party factoring company would be perilous to the IRC Section 130(c) exclusion afforded the qualified assignment company owning the structured settlement annuity as a qualified funding asset.
On the Factoring Channel yesterday, Matt Bracy, General Counsel of Settlement Capital, interprets a rehashed version of the article by Wood, published in the April 2007 Tax Advisor, to state that "his (Wood's) conclusion is that there is a significant and perilous difference between factoring (by a 3rd party) and acceleration or commutation.
This author believes that Bracy's argument matches the will and financial might of factoring companies, fueled by hedge funds with too much money on their hands, who are seduced by the double digit returns they can make investing in structured settlement payment rights, which are primarily AA or AAA rated assets. The double digit returns are what the settlement purchaser earns on the back of the structured settlement annuitant.
While it wasn't too difficult for any factoring company to work around the commutation discount rate offered by companies such as Allstate, the 11% discount rate (what I call a "pick and roll rate") offered by Allstate meant an erosion of profitability. This is because to compete, the factoring companies had to discount at a rate less than Allstate, Berkshire Hathaway or others were willing to commute for. For them, heaven forbid other annuity issuers followed the same strategy! With Allstate and co. out of the way, the "hyena and vultures" in the factoring crowd can circle "the carcass" and rip away even more hunks of flesh using higher discount rates and more profitability. Exactly how pushing this to the precipice benefits consumers , as Wood, Bracy and Pat Hindert (and their apparent backers) seem to be doing in their writing, is very difficult to see. For the factoring companies it's an utterly self serving fantasy. As Bracy states to Mark Wahlstrom in his video podcast interview on The Factoring Channel,the simplest thing is to "not do it" (commutations).
The same "hyena and vultures" want to be part of the structured settlement industry. Some even have the delusions that they are already in and, have falsely advertised that they are structured settlement brokers and give structured settlement quotes. However, there is a clear cultural demarcation line between the structured settlement industry and the factoring or settlement purchasing industry despite the latter's best efforts to infiltrate.
Congressmen and congresswomen, senators, judges,state regulators and the IRS, BEWARE, be very aware of what the "carrion crowd" want to do to your constituents and wards under the banner of "life, liberty and the pursuit of happiness". Don't fall for it!
They clearly want to charge higher discount rates and, as previously posted, there is an effort afoot to remove the requirement to have independent financial advice PRIOR to the Court approval of any structured settlement factoring transaction. I also understand that in North Carolina there is an initiative to RAISE the cap on the discount rates that factoring companies may charge in structured settlement factoring transactions. Wouldn't it be hypocritical to complain about the quality body armament of troops in Iraq while at the same time allowing a removal of armor (protection) for consumers in your constituencies?
And it probably would be prudent for insurance companies, like Allstate, to seek a Private Letter Ruling on this issue.
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