Disability Law

U.S. Treasury Priority Guidance Plan 2009-2010

By Patrick Hindert

The tax treatment of single-claimant 468B qualified settlement funds (QSF) has been eliminated from the Priority Guidance Plan for 2009-2010 announced jointly on November 24, 2009 by the United States Treasury Department and the Internal Revenue Service.

Neither the Treasury-IRS announcement nor the 2009-2010 Priority Guidance Plan explain why the single claimant 468B tax issue was omitted following five years during which the controversial structured settlement issue has appeared on the Priority Guidance Plan - without ever being addressed.

The purpose of the Priority Guidance Plan is to focus United States government resources "on guidance items that are most important to taxpayers and tax administration." According to the announcement, the 2009-2010 Priority Guidance Plan contains 315 projects to be completed during the twelve months beginning July 2009. The Priority Guidance Plan also lists more routine tax guidance that is published each year.

Both the announcement and the Priority Guidance Plan state generally:

• "We intend to update and republish the Priority Guidance Plan during the plan year to reflect additional guidance that we intend to publish during the plan year. The periodic updates allow us flexibility throughout the plan year to consider comments received from taxpayers and tax practitioners relating to additional projects and to respond to developments arising during the plan year" and
• "The published guidance process can be fully successful only if we have the benefit of the insight and experience of taxpayers and practitioners who must apply the rules. Therefore, we invite the public to continue to provide us with their comments and suggestions as we write guidance throughout the plan year. "

A 468B QSF is a temporary fund into which defendants in certain cases can deposit settlement monies and receive an immediate tax deduction. QSFs represent an alternative for a defendant paying settlement monies directly to the plaintiff(s). QSFs allow time for plaintiffs and their advisers to organize and fund a settlement plan with a settlement sum certain and judicial approval - without negotiation and sales pressures from defendants and their insurers.

Despite "one or more" qualification language in the 468B regulations, various stakeholders within the structured settlement industry dispute:

• Whether single claimants qualify for 468B QSFs and
• What constitutes a single claimant for purposes of IRC 468B.

Jeremy Babener, a QSF analyst and author, summarized the primary tax dispute:

• "Legal arguments have revolved around whether economic benefit is incurred where defendant monies are transferred to a single-claimant QSF.
  
• "Where multiple claimants, and thus possibly competing interests are not involved, some have argued that the transfer to a QSF represents an unconditional and irrevocable transfer to the single-claimant.
• " If the existing QSF regulatory structure does not prevent this from being the case (a hotly contested fact), transfers to single-claimant QSFs would withhold eligibility to the structured settlement tax subsidy for any structured settlement between single-claimants and QSFs."

Richard Risk, an attorney who advocates for single claimant QSFs, interprets the decision to remove the single claimant 468B project from the Priority Guidance Plan as evidence that sufficient guidance favoring single claimant 468B QSFs already exists. Risk points to I.R.C. § 7805(d) which requires the Treasury Secretary to ?prescribe all needful rules and regulations for the enforcement of [the Internal Revenue Code].? Risk concludes that Treasury?s decision is an acknowledgment that additional guidance is not ?needful.?

Robert Wood, a leading tax attorney and author of the recently released treatise Qualified Settlement Funds and Section 468B, has recommended that the use of single-claimant QSFs be avoided without additional clarification, though he believes that the regulations ?seem to allow the possibility of the single claimant QSF.?

Most recent S2KM analysis of QSFs:

• "Single Claimant 468B QSF Update" featuring Jeremy Babener's QSF paper; and
• "Robert Wood and 468B Funds" featuring Wood's new QSF book.

Full post as published by Beyond Structured Settlements on November 28, 2009 (boomark / email).