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26 USC CHAPTER 55 - STRUCTURED SETTLEMENT FACTORING

TRANSACTIONS 01/06/03

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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 01/06/03

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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.)

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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 01/06/03

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TITLE 26 - INTERNAL REVENUE CODE

Subtitle F - Procedure and Administration

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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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