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Every now and then lawyers and mediators have displayed confusion concerning the implications of disclosing the cost of a structured settlement to a plaintiff or a plaintiff attorney. The confusion by some centers on the misperception that constructive receipt is triggered by such disclosure, despite the fact that there are two IRS Private Letter Rulings which date back over 20 years!

PRIVATE RULING 8333035 ? Refers to Private Ruling 8325054

This ruling clarifies that disclosure of the annuity cost by the defendant has no impact on the income tax free aspects of a Structured Settlement; rather the unqualified availability is decisive.

?This document may not be used or cited as precedent. Section 6110(J) (3) of the Internal Revenue Code.?

SECTION 0451

General Rule for Taxable Year of Inclusion (Year Received V. NOT Year Received) ---Constructive Receipt

DATE: May 16, 1983

REFER REPLY TO: CC: IND: I: 3:3:

Dear * * *

This is in reply to a letter of April 5, 1983, submitted on your behalf by your authorized representative, requesting a supplemental ruling that disclosure by defendant of the cost or present value of an annuity to be purchased to fund its monthly settlement obligation will not cause you to be in constructive receipt of the present value of the amount invested in the annuity.

On March 21, 1983, the Internal Revenue Service issued a ruling that you will have neither actual nor constructive receipt, nor the economic benefit of the present value of the amount invested in the annuity, and the periodic payments will be excludable from your gross income under section 104(a) (2) of the Internal Revenue Code. In that ruling we cited rev. Rul. 79-313, 1979-2 C.B. 74; for the proposition that a corporation will be considered the owner of an annuity if the annuity is subject to the general creditors of the corporation, the corporation can change the beneficiary of the policy and the beneficiary does not have the right to accelerate any payment or increase or decrease the amount of the annual payments specified.

You have asked for a clarification of the above ruling because of your concern that your knowledge of the existence or cost of the annuity might cause you to be in constructive receipt of that annuity.

Section 1.451-2(a) of the Income Tax Regulations provides that income although not actually reduced to a taxpayer?s possession is constructively received by him in the taxable year in which it is credited to his account, set apart for him or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given.

Based on the language in section 1.451-2(a) of the regulations, the Service has consistently taken the position that knowledge is not determinative in deciding a question of constructive receipt, but that unqualified availability is decisive. Rev. Rul. 68-126, 1968-1 C.B. 194; Rev. Rul. 73-99, 1973-1 C.B. 412; Rev. Rul. 74-37, 1974-1`

Private Ruling 8333035 (continued)

C.B. 112; and Rev. Rul. 76-3, 1976-1 C.B. 114; all set forth conclusions consistent with this position.

Re. Rul. 74-37 takes the position that interest accruing in a Uniformed Services savings account subsequent to the time principal and interest on deposit exceeds $10,000 (at which time such interest may be withdrawn at request) is constructively received at that time since it is available within the meaning of section 1.451-2(a) of the regulations. There is no exception to this rule in the case of POW?s or MIA?s who would not be in a position to know of the triggering event.

Based on the information submitted in the original ruling request, we conclude that disclosure by defendant of the existence, cost, or present value of the annuity will not cause you to be in constructive receipt of the present value of the amount invested in the annuity.

This ruling is directed only to the taxpayer who requested it. Section 6110(j) (3) of the Code provides that it may not be used or cited as precedent.

A copy of this ruling should be attached to you tax return for the first taxable year in which those payment are received. We are enclosing a copy for this purpose.

In accordance with the power of attorney on file with us, a copy of this letter has been sent to your authorized representative.

Sincerely yours,

Anthony Manzanares, Jr.
Chief, Individual Income Tax Branch

Enclosures 2
Copy of this letter
Copy of section 6110 purposes

The other IRS ruling, PLR 9017011  ,dated January 24, 1990 stated   "The knowledge of the existence, cost, and present value of the annuity contract used to fund the settlement offer by Individual B's family and its representatives will not cause the family to be in constructive receipt of the amount payable under the annuity contract or the amount invested in the annuity contract".

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