A structured settlement is a package of financial and/or insurance products, generally including periodic payments, which a claimant accepts to resolve a personal injury claim or to compromise a statutory periodic payment obligation.
For purposes of Federal taxation, structured settlement is defined by IRC Section 5891(c)(1) as an arrangement, which meets the following requirements:
i. A structured settlement must be established by:
(a) A suit or agreement for periodic payment of damages excludable from gross income under IRC Section 104(a)(2); or
(b) An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Section 104(a)(1); and
ii. The periodic payments must be of the character described in subparagraphs (A) and (B) of IRC Section 130(c)(2) and must be payable by a person who:
(a) Is a party to the suit or agreement or to a workers compensation claims; or
(b) By a person who has assumed the liability for such periodic payments under a Qualified Assignment in accordance with IRC Section 130.
For additional information, see “Introduction to Annuities” , “Advantages and Disadvantages of Annuities” , and "Structured Settlement Factoring" as well as “Structured Settlements and Periodic Payment Judgments”.
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