The Tax Laws Guiding the Use of Structured Settlements

In The Periodic Payment Settlement Act of 1982 (P.L. No. 97-473), Congress adopted specific tax rules to encourage the use of structured settlements to resolve physical injury cases. Section 104(a)(2) of the Internal Revenue Code clarifies that the full amount of the structured settlement payment (s) is tax-free to the claimant. (By contrast, earnings on lump sum payments are subject to taxes.)

Section 130 of the IRS Code allows for an assignment of obligation to a third party. This code gives the defendant/obligor the ability to transfer the obligation of payment and derecognize the liability.

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