Selling a structured settlements - A structured settlement arrangement generally provides for periodic payments as damages in cases involving personal physical injuries or physical sickness, or for amounts received under workmen's compensation acts for personal injuries or sickness. An exclusion from gross income is provided to the assignee of a liability in such a case for amounts received for agreeing to the assignment, provided requirements are met relating to the payments. Such payments generally are excludable from income by the recipient, whether received as a lump sum or as periodic payments.
An individual's decision to sell his or her rights at a later date involves the same comparison the individual makes in initially agreeing to a structured settlement arrangement in lieu of a lump sum payment. The individual must weigh the value of the purchase price offered compared to the expected present discounted value of the income stream being sold. Issues arising from the transfer of structured settlement payment streams involve whether such sales are consistent with the purpose of the tax provisions, whether consumer protection or consumer freedom of economic choice is a more important policy, and whether the transfers should be stopped so as to eliminate present-law uncertainty as to their tax results.
The President's proposal would impose an excise tax on any person acquiring a payment stream under a structured settlement arrangement. The amount of the excise tax would be 40 percent of the difference between the amount paid by the acquirer to the injured person and the undiscounted value of the acquired income stream. The excise tax would not be imposed if the acquisition were pursuant to a court order finding that the extraordinary and unanticipated needs of the original recipient of the payment stream render the acquisition desirable.
H.R. 263, "The Structured Settlement Protection Act" (106th Cong., 1st Sess.) was introduced by Mr. Shaw for himself, Mr. Stark, and others. In general, H.R. 263 would impose a tax on certain acquisitions of structured settlement payment streams, equal to 50 percent of the amount equal to the excess of the aggregate undiscounted amount of structured settlement payments being acquired, over the total amount actually paid by the acquirer to the seller. H.R. 263 would provide an exception if the transfer is undertaken pursuant to the order of the relevant court or administrative authority finding that the extraordinary, unanticipated, and imminent needs of the structured settlement recipient or spouse or dependents render such a transfer appropriate.
Selling a structured settlements
The economic benefit in the structured settlement arrangement, as compared to a lump-sum settlement, arises because the Federal government forgoes taxation of the earnings component of each year's annual payment. Economists usually argue that such subsidies distort individual choice and lead to inefficient outcomes. Nevertheless, it can be argued that the choice of the lump sum settlement may create an externality, that is, a cost to taxpayers at large, not borne by the individual who chooses the lump sum settlement. Despite the implicit tax subsidy, the available evidence indicates that the majority of personal injury awards are paid as lump sum payments, not through structured settlement arrangements.An individual's decision to sell his or her rights at a later date involves the same comparison the individual makes in initially agreeing to a structured settlement arrangement in lieu of a lump sum payment. The individual must weigh the value of the purchase price offered compared to the expected present discounted value of the income stream being sold. Issues arising from the transfer of structured settlement payment streams involve whether such sales are consistent with the purpose of the tax provisions, whether consumer protection or consumer freedom of economic choice is a more important policy, and whether the transfers should be stopped so as to eliminate present-law uncertainty as to their tax results.
The President's proposal would impose an excise tax on any person acquiring a payment stream under a structured settlement arrangement. The amount of the excise tax would be 40 percent of the difference between the amount paid by the acquirer to the injured person and the undiscounted value of the acquired income stream. The excise tax would not be imposed if the acquisition were pursuant to a court order finding that the extraordinary and unanticipated needs of the original recipient of the payment stream render the acquisition desirable.
H.R. 263, "The Structured Settlement Protection Act" (106th Cong., 1st Sess.) was introduced by Mr. Shaw for himself, Mr. Stark, and others. In general, H.R. 263 would impose a tax on certain acquisitions of structured settlement payment streams, equal to 50 percent of the amount equal to the excess of the aggregate undiscounted amount of structured settlement payments being acquired, over the total amount actually paid by the acquirer to the seller. H.R. 263 would provide an exception if the transfer is undertaken pursuant to the order of the relevant court or administrative authority finding that the extraordinary, unanticipated, and imminent needs of the structured settlement recipient or spouse or dependents render such a transfer appropriate.
