26 U.S.C. § 5891 — Structured settlement factoring trans-

Page 3292 TITLE 26—INTERNAL REVENUE CODE § 5891 Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1988 AMENDMENT Amendment by section 2004(o)(1)(A), (C), (2) of Pub. L. 100–647 effective, except as otherwise provided, as if in- cluded in the provisions of the Revenue Act of 1987, Pub. L. 100–203, title X, to which such amendment re- lates, see section 2004(u) of Pub. L. 100–647, set out as a note under section 56 of this title. Pub. L. 100–647, title II, § 2004(o)(1)(B)(ii), Nov. 10, 1988, 102 Stat. 3608, provided that: ‘‘The amendment made by clause (i) [amending this section] shall apply to trans- actions occurring on or after March 31, 1988.’’ EFFECTIVE DATE Pub. L. 100–203, title X, § 10228(d), Dec. 22, 1987, 101 Stat. 1330–418, provided that: ‘‘The amendments made by this section [enacting this chapter and amending section 275 of this title] shall apply to consideration re- ceived after the date of the enactment of this Act [Dec. 22, 1987] in taxable years ending after such date; except that such amendments shall not apply in the case of any acquisition pursuant to a written binding contract in effect on December 15, 1987, and at all times there- after before the acquisition.’’ CHAPTER 55—STRUCTURED SETTLEMENT FACTORING TRANSACTIONS Sec. 5891. Structured settlement factoring transactions. § 5891. Structured settlement factoring trans- actions (a) Imposition of tax There is hereby imposed on any person who ac- quires directly or indirectly structured settle- ment 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 fac- toring transaction in which the transfer of structured settlement payment rights is ap- proved in advance in a qualified order. (2) Qualified order For purposes of this section, the term ‘‘qualified order’’ means a final order, judg- ment, 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 sup- port 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 au- thority (if any) which has exclusive juris- diction over the underlying action or pro- ceeding which was resolved by means of the structured settlement. (3) Applicable State statute For purposes of this section, the term ‘‘ap- plicable State statute’’ means a statute pro- viding 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 sub- paragraph (A), the State in which either the party to the structured settlement (includ- ing 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 stat- ute. (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 domi- ciled. (5) Qualified order dispositive A qualified order shall be treated as disposi- tive 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’ com- pensation 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 subpara- graphs (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 por- tions of structured settlement payments) Page 3293 TITLE 26—INTERNAL REVENUE CODE § 5891 1 Section numbers editorially supplied. made for consideration by means of sale, as- signment, pledge, or other form of encum- brance or alienation for consideration. (B) Exception Such term shall not include— (i) the creation or perfection of a secu- rity interest in structured settlement pay- ment rights under a blanket security agreement entered into with an insured depository institution in the absence of any action to redirect the structured set- tlement payments to such institution (or agent or successor thereof) or otherwise to enforce such blanket security interest as against the structured settlement pay- ment rights, or (ii) a subsequent transfer of structured settlement payment rights acquired in a structured settlement factoring trans- action. (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 ac- quired in the structured settlement fac- toring transaction, over (B) the total amount actually paid by the acquirer to the person from whom such structured settlement payments are ac- quired. (5) Responsible administrative authority The term ‘‘responsible administrative au- thority’’ means the administrative authority which had jurisdiction over the underlying ac- tion or proceeding which was resolved by means of the structured settlement. (6) State The term ‘‘State’’ includes the Common- wealth 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 involv- ing structured settlement payment rights was entered into, the subsequent occurrence of a structured settlement factoring transaction shall not affect the application of the provi- sions 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 per- son making the payments in the event of a structured settlement factoring transaction. (Added Pub. L. 107–134, title I, § 115(a), Jan. 23, 2002, 115 Stat. 2436.) Statutory Notes and Related Subsidiaries EFFECTIVE DATE Pub. L. 107–134, title I, § 115(c), Jan. 23, 2002, 115 Stat. 2438, provided that: ‘‘(1) IN GENERAL.—The amendments made by this sec- tion [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 set- tlement 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 set- tlement 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 struc- tured 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 ad- ministrative authority); and ‘‘(ii) is in the best interest of the structured set- tlement payee or is appropriate in light of a hard- ship faced by the payee; and ‘‘(B) the person acquiring the structured settlement payment rights discloses to the structured settle- ment 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 re- ceived 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 sec- tion 7520 of such Code), and the expenses required under the terms of the structured settlement fac- toring transaction to be paid by the structured set- tlement payee or deducted from the proceeds of such transaction.’’ Subtitle F—Procedure and Administration 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