Disability Law

Legislation to Expand the Structured Settlement Industry

By Patrick Hindert

Jeremy Babener, third year student at NYU School of Law, has published a new article in the North Carolina Lawyers Weekly, titled: "How Plaintiffs Might Receive Emotional Distress Damages Tax-Free After 2010." This article, as well as Babener's other online writing, is available on his tax resources web site TaxStructuring.Com. In addition, S2KM features Babener's writing on S2KM's blog and structured settlement public policy wiki.

Babener's newest article examines past and future avenues for expanding the structured settlement industry by enlarging the tax exclusion for personal injury damages through regulation and legislation.

Babener's article begins with a summary of attempts by plaintiff attorneys and other structured settlement stakeholders to expand the definition of " physical" at the February 23, 2010 Treasury hearing, so that more damages are exempt from taxation under section 104(a)(2)'s exclusion of payments made "on account of personal physical injuries."

According to Babener, the U.S Treasury used the Administrative Procedure Act as one reason for not accepting some of the suggestions made at the recent Treasury hearing about IRC 104(a)(2) regulations. Babener's article, however, explains how the use of notice and comment periods for " interpretive" regulations are not necessarily required, even if ordinarily used.

Babener's article asks a pointed and strategic question. How can the structured settlement industry encourage more damages to be received tax-free? Doing so, presumably, would expand the structured settlement market. Babener recommends new tax legislation as one next step for industry growth.

The National Taxpayer Advocate, which considers taxpayer considerations from inside the IRS, recently recommended that section 104(a)(2) exempt non-physical damages, specifically emotional distress, mental anguish, and pain and suffering. This recommendation can be found in the Legislative Recommendations of the 2009 Report to Congress. If enacted, this recommendation would essentially undo the 1996 legislation requiring damages to be physical in order to be eligible for the 104(a)(2) tax exemption, and specifically holding emotional distress damages to be taxable.

Recounting the structured settlement industry's past lobbying successes, Babener suggests 2010 as the year for collaborative structured settlement industry political action. His article concludes, "It would seem that those opposed to the physical requirement of the tax exclusion have the momentum, planned or otherwise. If there was a year to reverse the 1996 legislation?s impact, it looks like that year is 2010."

S2KM agrees with Babener's recommendations and encourages structured settlement industry leaders to read his article and to continue to feature tax legislation as fundamental education and lobbying components for industry growth.

Full post as published by Beyond Structured Settlements on March 09, 2010 (boomark / email).