Federal Law

Nationally Recognized Structured Settlement IPA

ALL STATE STATUTES MUST ALSO COMPLY WITH
THE FEDERAL MODEL ACT

Separate from the state law that governs the transfer, a transfer of structured settlement annuity payments must also comply with Federal Law. Specifically, that each individual state “structured settlement protection act” is actually modeled after a“Federal Model Act”); and every transfer of a structured settlement annuity payment must meet the requirements of both the state and federal acts.

The Federal Model Act is set forth 26 U.S.C. § 5891, and the complete text of the law can be located at: http://uscode.house.gov/download/pls/26C55.txt. Enacted by the 107th Congress, first session, in 2001 as part of the Victims of Terrorism Tax Relief Act of 2001, 26 U.S.C. § 5891, requires that all transfers must be approved by a State Court where a Judge makes certain specific findings in what is called a “qualified” order.

If a transfer of structured settlement annuity payments does NOT comply with both the Federal and State Laws that govern the transfer, then the transaction will probably NOT fund; as a 40% excise tax is imposed on the purchaser of the payments making funding costs prohibitive

26 U.S.C. § 5891also contains references to other sections of the Internal revenue Code (“IRC”) as well, which specifically deal with how “other” tax issues under each and every transfer are to be both treated and avoided by the various parties to the transaction, separate from the seller of structured settlement annuity payments.

These sections (while not applicable to the current discussion) can be found at 26 U.S.C. sections 72, 104(a)(1),104(a)(2), 130, 461(h), and section 3405; all of which set forth the tax treatment and possible tax consequences related to structured settlements as applied to annuity issuers, annuity owners and obligors, and the final assignees of structured settlement annuity payments.  For further reference, please see http://www.irs.gov .

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