TITLE 26--INTERNAL REVENUE CODE
Subtitle E--Alcohol, Tobacco, and Certain Other Excise Taxes
CHAPTER 55--STRUCTURED SETTLEMENT FACTORING TRANSACTIONS
Sec. 5891. Structured settlement factoring transactions
(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.
(Added Pub. L. 107-134, title I, Sec. 115(a), Jan. 23, 2002, 115 Stat.
2436.)
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.''
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
January 2, 2001 and January 22, 2002]
[CITE: 26USC5891] Link to Source U. S. Government Document
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