Editing Structured settlement (section)

===Tax issues===
In 1982, Congress adopted special tax rules to encourage the use of structured settlements to provide long-term financial security to seriously injured victims and their families.<ref>{{cite web | url=https://www.jct.gov/publications.html?func=startdown&id=2772 | title=JCX-58-82 | publisher=The Joint Committee on Taxation | date=22 December 1982 | accessdate=20 May 2015}}</ref><ref>Public L. No. 97-473, 96 Stat. 2605 (Jan. 14, 1983).</ref> These structured settlement rules, as codified in the enactment of the Periodic Payment Settlement Act of 1982, which established Section 130 of the Internal Revenue Code of 1986 (IRC) and in amendments to section 104(a)(2) of the Code, have been in place working effectively since then. In the Taxpayer Relief Act of 1997, Congress extended the structured settlements to worker's compensation to cover physical injuries suffered in the workplace. A "structured settlement" under the tax code's terms is an "arrangement" that meets the following requirements.

Damages on the account of personal physical injury, physical sickness and workers compensation are income tax free due to exclusions provided in IRC section 104.<ref>{{cite web|title=26 U.S. Code § 104 - Compensation for injuries or sickness|url=https://www.law.cornell.edu/uscode/text/26/104|website=Legal Information Institute|publisher=Cornell Law School|accessdate=5 September 2017}}</ref> The structured settlement tax rules enacted by Congress lay down a bright line path for a structured settlement.  Once the plaintiff and defense have settled the tort claim in exchange for periodic payments to be made by the defendant (or the defendant's insurer), the full amount of the periodic payments constitutes tax-free damages to the victim. The defendant, or its insurer, may assign its periodic payment obligation to a qualified assignment company (typically a single purpose affiliate of a life insurer) that funds its assumed obligation with an annuity purchased from its affiliated life insurer. The rules also permit the assignee to fund its periodic payment obligation under the structured settlement via U.S. Treasury obligations. However, this U.S. Treasury obligation approach is used much less frequently because of lower returns and the relative inflexibility of payment schedules available under Treasury obligations. In this way, with a qualified assignment, there is a legal [[novation]], the defendant or insurer can close its books on the liability, and the claimant can receive the long-term financial security of an annuity (or annuities) issued by one or more financially strong life insurance companies.

What makes this work is the tax exclusion to the qualified assignment company afforded by IRC section 130.<ref name="irc130"/> Without the tax exclusion, the cost of assignment would be higher, because the assignment company would need to recognize the premium as income. The resulting net after tax amount would be insufficient to fund the assumed obligation.

To qualify for special tax treatment, a structured settlement must meet the following requirements:

* A structured settlement must be established by:
** A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue Code Section 104(a)(2) ({{usc|26|104(a)(2)}}); or
** An agreement for the periodic payment of compensation under any workers' compensation law excludable under Internal Revenue Code Section 104(a)(1) ({{usc|26|104(a)(1)}}); and
* The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal Revenue Code Section 130(c)(2) ({{usc|26|130(c)(2))}}) and must be payable by a person who:
** Is a party to the suit or agreement or to a workers' compensation claim; or
** By a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with Internal Revenue Code Section 130 ({{usc|26|130}}).