Structured Settlements Legal Framework and Court Approval 2

Question 1

What is a 'qualified assignment' under IRC §130?

Accepted Answer

A transaction in which the defendant assigns its periodic payment obligation to a third party, allowing the defendant to exclude the assignment proceeds from income

Answer

Under IRC §130, a qualified assignment allows a defendant (or its liability insurer) to transfer the periodic payment obligation to a qualified assignee and exclude the consideration received from gross income.

Question 2

For a workers' compensation structured settlement, which IRC section governs the tax exclusion?

Accepted Answer

IRC §104(a)(1)

Answer

Workers' compensation payments, including those structured as periodic payments, are excluded from gross income under IRC §104(a)(1), not §104(a)(2).

Question 3

What is a 'structured settlement factoring transaction'?

Accepted Answer

A transaction in which a claimant sells some or all future structured settlement payment rights to a third party for a lump sum

Answer

A factoring transaction occurs when a payee sells the right to receive future structured settlement payments to a factoring company in exchange for an immediate (discounted) lump-sum payment.

Question 4

Under IRC §130, the periodic payments in a qualified assignment must be 'fixed and determinable.' What does this mean?

Accepted Answer

The amount and timing of each payment must be ascertainable at the time the assignment is made

Answer

Fixed and determinable means the amount and timing of every future payment can be calculated at the time the assignment is executed, ensuring certainty for all parties.

Question 5

Which court generally has jurisdiction to approve a structured settlement transfer in the US?

Accepted Answer

A court of competent jurisdiction in the state where the payee resides, as specified by the applicable SSPA

Answer

Most SSPAs confer jurisdiction on a court (typically a superior or circuit court) in the payee's state of residence at the time of the transfer application.

Structured Settlements Practice Test

Structured Settlements Practice Test

Structured Settlements Legal Framework and Court Approval 2