Brain Injury > Structured Settlements
> Tax Code
IRS SECTION 130 TAX CODE
Keith Kleinick is a licensed structured settlement broker who can give you more information about how a structured settlement can benefit you if you are receiving compensation payments for a brain injury in New York City (NYC), Brooklyn, Bronx, Manhattan, and the surrounding areas.
The structured settlement business generated by the members of the NSSTA exists, almost entirely, because of the presence of two provisions of the Internal Revenue Code. Sections 104 and 130. Section 104 provides that monies received by individuals on account of personal injury, sickness or death is excludable from the gross income of the taxpayer receiving said monies.
This exclusion applies whether the monies are received in a lump sum or over a period of time. Hence, monies received under a structured settlement are not taxable to the Plaintiff. This section of the Code dates back to 1939 and is well-established. The exclusion from gross income applies to all monies received as a result of personal injury, sickness or death as long as there was some physical injury.
The other relevant provision of the Internal Revenue Code is Section 130, which conveys certain tax benefits on the insurance companies that enter into structured settlements. This provision was not enacted until 1986 and resulted from intense lobbying by insurance companies and structured settlement companies. It provides that an entity that accepts, by way of a "qualified assignment," the obligation to make structured settlement payments to an injured claimant shall not be taxed on the amount paid to said party by the defendant to assume such obligation, provided that the Assignment Company:
- (i) Assumes the liability from a person who was a party to the suit or settlement agreement
- (ii) The periodic payments are fixed and determinable as to amount and time of payment
- (iii) The periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of the payments
- (iv) The assignee's obligation is no greater than the obligation of the person who assigned the liability
- (v) The periodic payments are excludable from the gross income of the recipient under Section 104
- (vi) The amount received by the assignee for assuming the periodic payment obligation is used to purchase a "qualified funding asset."
A quailed funding asset is defined as an annuity contract issued by a life insurance company or an obligation of the United States (such as treasury bills). It allows NSSTA broker members to "sell" structured settlements more effectively and amounts to a huge tax benefit for the insurance companies, which own the Qualified Assignment companies.
As a result of Section 130, much of the 5-8 billion dollars received by Assignment Companies each year to assume the obligation of defendants and property and casualty carriers to make the periodic payments due under structured settlements is not taxable to the entities that receive these payments. While it is true that the Assignment Companies use most or all of this money to purchase "qualified funding assets," it is important to note that almost all of these qualified funding assets are purchased from affiliated life insurance companies (parent or sister companies).
Thus, the life insurance companies get to sell their annuity products at very competitive rates. For those life insurance companies that own property and casualty companies and also issue annuities to fund structured settlements, the they have a potentially very large and lucrative captive customer.