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26 USC CHAPTER 55 - STRUCTURED SETTLEMENT FACTORING
TRANSACTIONS 01/19/04
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TITLE 26 - INTERNAL REVENUE CODE
Subtitle E - Alcohol, Tobacco, and Certain Other Excise Taxes
CHAPTER 55 - STRUCTURED SETTLEMENT FACTORING TRANSACTIONS
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CHAPTER 55 - STRUCTURED SETTLEMENT FACTORING TRANSACTIONS
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Sec.
5891. Structured settlement factoring transactions.
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26 USC Sec. 5891 01/19/04
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TITLE 26 - INTERNAL REVENUE CODE
Subtitle E - Alcohol, Tobacco, and Certain Other Excise Taxes
CHAPTER 55 - STRUCTURED SETTLEMENT FACTORING TRANSACTIONS
-HEAD-
Sec. 5891. Structured settlement factoring transactions
-STATUTE-
(a) Imposition of tax
There is hereby imposed on any person who acquires directly or
indirectly structured settlement payment rights in a structured
settlement factoring transaction a tax equal to 40 percent of the
factoring discount as determined under subsection (c)(4) with
respect to such factoring transaction.
(b) Exception for certain approved transactions
(1) In general
The tax under subsection (a) shall not apply in the case of a
structured settlement factoring transaction in which the transfer
of structured settlement payment rights is approved in advance in
a qualified order.
(2) Qualified order
For purposes of this section, the term "qualified order" means
a final order, judgment, or decree which -
(A) finds that the transfer described in paragraph (1) -
(i) does not contravene any Federal or State statute or the
order of any court or responsible administrative authority,
and
(ii) is in the best interest of the payee, taking into
account the welfare and support of the payee's dependents,
and
(B) is issued -
(i) under the authority of an applicable State statute by
an applicable State court, or
(ii) by the responsible administrative authority (if any)
which has exclusive jurisdiction over the underlying action
or proceeding which was resolved by means of the structured
settlement.
(3) Applicable State statute
For purposes of this section, the term "applicable State
statute" means a statute providing for the entry of an order,
judgment, or decree described in paragraph (2)(A) which is
enacted by -
(A) the State in which the payee of the structured settlement
is domiciled, or
(B) if there is no statute described in subparagraph (A), the
State in which either the party to the structured settlement
(including an assignee under a qualified assignment under
section 130) or the person issuing the funding asset for the
structured settlement is domiciled or has its principal place
of business.
(4) Applicable State court
For purposes of this section -
(A) In general
The term "applicable State court" means, with respect to any
applicable State statute, a court of the State which enacted
such statute.
(B) Special rule
In the case of an applicable State statute described in
paragraph (3)(B), such term also includes a court of the State
in which the payee of the structured settlement is domiciled.
(5) Qualified order dispositive
A qualified order shall be treated as dispositive for purposes
of the exception under this subsection.
(c) Definitions
For purposes of this section -
(1) Structured settlement
The term "structured settlement" means an arrangement -
(A) which is established by -
(i) suit or agreement for the periodic payment of damages
excludable from the gross income of the recipient under
section 104(a)(2), or
(ii) agreement for the periodic payment of compensation
under any workers' compensation law excludable from the gross
income of the recipient under section 104(a)(1), and
(B) under which the periodic payments are -
(i) of the character described in subparagraphs (A) and (B)
of section 130(c)(2), and
(ii) payable by a person who is a party to the suit or
agreement or to the workers' compensation claim or by a
person who has assumed the liability for such periodic
payments under a qualified assignment in accordance with
section 130.
(2) Structured settlement payment rights
The term "structured settlement payment rights" means rights to
receive payments under a structured settlement.
(3) Structured settlement factoring transaction
(A) In general
The term "structured settlement factoring transaction" means
a transfer of structured settlement payment rights (including
portions of structured settlement payments) made for
consideration by means of sale, assignment, pledge, or other
form of encumbrance or alienation for consideration.
(B) Exception
Such term shall not include -
(i) the creation or perfection of a security interest in
structured settlement payment rights under a blanket security
agreement entered into with an insured depository institution
in the absence of any action to redirect the structured
settlement payments to such institution (or agent or
successor thereof) or otherwise to enforce such blanket
security interest as against the structured settlement
payment rights, or
(ii) a subsequent transfer of structured settlement payment
rights acquired in a structured settlement factoring
transaction.
(4) Factoring discount
The term "factoring discount" means an amount equal to the
excess of -
(A) the aggregate undiscounted amount of structured
settlement payments being acquired in the structured settlement
factoring transaction, over
(B) the total amount actually paid by the acquirer to the
person from whom such structured settlement payments are
acquired.
(5) Responsible administrative authority
The term "responsible administrative authority" means the
administrative authority which had jurisdiction over the
underlying action or proceeding which was resolved by means of
the structured settlement.
(6) State
The term "State" includes the Commonwealth of Puerto Rico and
any possession of the United States.
(d) Coordination with other provisions
(1) In general
If the applicable requirements of sections 72, 104(a)(1),
104(a)(2), 130, and 461(h) were satisfied at the time the
structured settlement involving structured settlement payment
rights was entered into, the subsequent occurrence of a
structured settlement factoring transaction shall not affect the
application of the provisions of such sections to the parties to
the structured settlement (including an assignee under a
qualified assignment under section 130) in any taxable year.
(2) No withholding of tax
The provisions of section 3405 regarding withholding of tax
shall not apply to the person making the payments in the event of
a structured settlement factoring transaction.
-SOURCE-
(Added Pub. L. 107-134, title I, Sec. 115(a), Jan. 23, 2002, 115
Stat. 2436.)
-MISC1-
EFFECTIVE DATE
Pub. L. 107-134, title I, Sec. 115(c), Jan. 23, 2002, 115 Stat.
2438, provided that:
"(1) In general. - The amendments made by this section [enacting
this chapter] (other than the provisions of section 5891(d) of the
Internal Revenue Code of 1986, as added by this section) shall
apply to structured settlement factoring transactions (as defined
in section 5891(c) of such Code (as so added)) entered into on or
after the 30th day following the date of the enactment of this Act
[Jan. 23, 2002].
"(2) Clarification of existing law. - Section 5891(d) of such
Code (as so added) shall apply to structured settlement factoring
transactions (as defined in section 5891(c) of such Code (as so
added)) entered into before, on, or after such 30th day.
"(3) Transition rule. - In the case of a structured settlement
factoring transaction entered into during the period beginning on
the 30th day following the date of the enactment of this Act and
ending on July 1, 2002, no tax shall be imposed under section
5891(a) of such Code if -
"(A) the structured settlement payee is domiciled in a State
(or possession of the United States) which has not enacted a
statute providing that the structured settlement factoring
transaction is ineffective unless the transaction has been
approved by an order, judgment, or decree of a court (or where
applicable, a responsible administrative authority) which finds
that such transaction -
"(i) does not contravene any Federal or State statute or the
order of any court (or responsible administrative authority);
and
"(ii) is in the best interest of the structured settlement
payee or is appropriate in light of a hardship faced by the
payee; and
"(B) the person acquiring the structured settlement payment
rights discloses to the structured settlement payee in advance of
the structured settlement factoring transaction the amounts and
due dates of the payments to be transferred, the aggregate amount
to be transferred, the consideration to be received by the
structured settlement payee for the transferred payments, the
discounted present value of the transferred payments (including
the present value as determined in the manner described in
section 7520 of such Code), and the expenses required under the
terms of the structured settlement factoring transaction to be
paid by the structured settlement payee or deducted from the
proceeds of such transaction."
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26 USC Subtitle F - Procedure and Administration 01/19/04
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TITLE 26 - INTERNAL REVENUE CODE
Subtitle F - Procedure and Administration
-HEAD-
Subtitle F - Procedure and Administration
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Chapter Sec.(!1)
61. Information and returns 6001
62. Time and place for paying tax 6151
63. Assessment 6201
64. Collection 6301
65. Abatements, credits, and refunds 6401
66. Limitations 6501
67. Interest 6601
68. Additions to the tax, additional amounts, and
assessable penalties 6651
69. General provisions relating to stamps 6801
70. Jeopardy, receiverships, etc. 6851
71. Transferees and fiduciaries 6901
72. Licensing and registration 7001
73. Bonds 7101
74. Closing agreements and compromises 7121
75. Crimes, other offenses, and forfeitures 7201
76. Judicial proceedings 7401
77. Miscellaneous provisions 7501
78. Discovery of liability and enforcement of title 7601
79. Definitions 7701
80. General Rules 7801
AMENDMENTS
1980 - Pub. L. 96-589, Sec. 6(g)(3)(E), Dec. 24, 1980, 94 Stat.
3410, substituted "Jeopardy, receiverships, etc." for "Jeopardy,
bankruptcy and receiverships" in item for chapter 70.
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SUBTITLE REFERRED TO IN OTHER SECTIONS
This subtitle is referred to in sections 167, 408, 460, 468A,
468B, 527, 643, 810, 852, 860E, 860F, 860K, 874, 882, 911, 1397E,
2661, 3121, 3402, 3405, 3406, 3510, 4405, 4414, 4462, 4484, 4980,
4999, 5067, 5148, 5560, 5881, 7851 of this title; title 42 sections
401, 408, 1307, 1395i; title 48 section 1421i.
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(!1) Section numbers editorially supplied.
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