II

106TH CONGRESS

1ST SESSION S. 1045

To amend the Internal Revenue Code of 1986 to impose an excise tax

on persons who acquire structured settlement payments in factoring

transactions, and for other purposes.

IN THE SENATE OF THE UNITED STATES

MAY 13, 1999

Mr. CHAFEE (for himself, Mr. BAUCUS, Mr. GRASSLEY, Mr. ROCKEFELLER,

Mr. BREAUX, Mr. KERREY, and Mr. ROBB) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to impose

an excise tax on persons who acquire structured settlement payments in factoring transactions, and for other

purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Structured Settlement Protection Act’’.

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment
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1 to, or repeal of, a section or other provision, the reference

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986.

4 SEC. 2. IMPOSITION OF EXCISE TAX ON PERSONS WHO AC5 QUIRE STRUCTURED SETTLEMENT PAY6 MENTS IN FACTORING TRANSACTIONS.

7 Subtitle E is amended by adding at the end the fol8 lowing new chapter:

9 ‘‘CHAPTER 55—STRUCTURED

10 SETTLEMENT FACTORING TRANSACTIONS

‘‘Sec. 5891. Structured settlement factoring transactions.

11 ‘‘SEC. 5891. STRUCTURED SETTLEMENT FACTORING TRANS12 ACTIONS.

13 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed

14 on any person who acquires directly or indirectly struc15 tured settlement payment rights in a structured settle16 ment factoring transaction a tax equal to 50 percent of

17 the factoring discount as determined under subsection

18 (c)(4) with respect to such factoring transaction.

19 ‘‘(b) EXCEPTION FOR COURT-APPROVED HARD20 SHIP.—The tax under subsection (a) shall not apply in

21 the case of a structured settlement factoring transaction

22 in which the transfer of structured settlement payment

23 rights is—
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1 ‘‘(1) otherwise permissible under applicable law,

2 and

3 ‘‘(2) undertaken pursuant to the order of the

4 relevant court or administrative authority finding

5 that the extraordinary, unanticipated, and imminent

6 needs of the structured settlement recipient or the

7 recipient’s spouse or dependents render such a

8 transfer appropriate.

9 ‘‘(c) DEFINITIONS.—For purposes of this section—

10 ‘‘(1) STRUCTURED SETTLEMENT.—The term

11 ‘structured settlement’ means an arrangement—

12 ‘‘(A) established by—

13 ‘‘(i) suit or agreement for the periodic

14 payment of damages excludable from the

15 gross income of the recipient under section

16 104(a)(2), or

17 ‘‘(ii) agreement for the periodic pay18 ment of compensation under any workers’

19 compensation act that is excludable from

20 the gross income of the recipient under

21 section 104(a)(1), and

22 ‘‘(B) where the periodic payments are—

23 ‘‘(i) of the character described in sub24 paragraphs (A) and (B) of section

25 130(c)(2), and
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1 ‘‘(ii) payable by a person who is a

2 party to the suit or agreement or to the

3 workers’ compensation claim or by a per4 son who has assumed the liability for such

5 periodic payments under a qualified assign6 ment in accordance with section 130.

7 ‘‘(2) STRUCTURED SETTLEMENT PAYMENT

8 RIGHTS.—The term ‘structured settlement payment

9 rights’ means rights to receive payments under a

10 structured settlement.

11 ‘‘(3) STRUCTURED SETTLEMENT FACTORING

12 TRANSACTION.—The term ‘structured settlement

13 factoring transaction’ means a transfer of structured

14 settlement payment rights (including portions of

15 structured settlement payments) made for consider16 ation by means of sale, assignment, pledge, or other

17 form of encumbrance or alienation for consideration.

18 ‘‘(4) FACTORING DISCOUNT.—The term ‘fac19 toring discount’ means an amount equal to the ex20 cess of—

21 ‘‘(A) the aggregate undiscounted amount

22 of structured settlement payments being ac23 quired in the structured settlement factoring

24 transaction, over
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1 ‘‘(B) the total amount actually paid by the

2 acquirer to the person from whom such struc3 tured settlement payments are acquired.

4 ‘‘(5) RELEVANT COURT OR ADMINISTRATIVE

5 AUTHORITY.—The term ‘relevant court or adminis6 trative authority’ means—

7 ‘‘(A) the court (or where applicable, the

8 administrative authority) which had jurisdiction

9 over the underlying action or proceeding that

10 was resolved by means of the structured settle11 ment, or

12 ‘‘(B) in the event that no action or pro13 ceeding was brought, a court (or where applica14 ble, the administrative authority) which—

15 ‘‘(i) would have had jurisdiction over

16 the claim that is the subject of the struc17 tured settlement, or

18 ‘‘(ii) has jurisdiction by reason of the

19 residence of the structured settlement re20 cipient.

21 ‘‘(d) COORDINATION WITH OTHER PROVISIONS.—

22 ‘‘(1) IN GENERAL.—In any case where the ap23 plicable requirements of sections 72, 130, and

24 461(h) were satisfied at the time the structured set25 tlement was entered into, the subsequent occurrence
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1 of a structured settlement factoring transaction shall

2 not affect the application of the provisions of such

3 sections to the parties to the structured settlement

4 (including an assignee under a qualified assignment

5 under section 130) in any taxable year.

6 ‘‘(2) REGULATIONS.—The Secretary is author7 ized to prescribe such regulations as may be nec8 essary to clarify the treatment in the event of a

9 structured settlement factoring transaction of

10 amounts received by the structured settlement re11 cipient.’’

12 SEC. 3. TAX INFORMATION REPORTING OBLIGATIONS.

13 Subpart B of part III of subchapter A of chapter 61

14 is amended by adding at the end the following new section:

15 ‘‘SEC. 6050T. REPORTING REQUIREMENTS REGARDING

16 STRUCTURED SETTLEMENT FACTORING

17 TRANSACTIONS.

18 ‘‘(a) IN GENERAL.—In the case of a transfer of

19 structured settlement payment rights in a structured set20 tlement factoring transaction—

21 ‘‘(1) described in section 5891(b) and of which

22 the person making the structured settlement pay23 ments has actual notice and knowledge, such person

24 shall make such return and furnish such written

25 statement to the acquirer of the structured settle-
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1 ment payment rights as would be applicable under

2 the provisions of section 6041 (except as provided in

3 subsection (c) of this section), or

4 ‘‘(2) subject to tax under section 5891(a) and

5 of which the person making the structured settle6 ment payments has actual notice and knowledge,

7 such person shall make such return and furnish

8 such written statement to the acquirer of the struc9 tured settlement payment rights at such time, and

10 in such manner and form, as the Secretary shall by

11 regulations prescribe.

12 ‘‘(b) COORDINATION WITH OTHER PROVISIONS.—

13 The provisions of this section shall apply in lieu of any

14 other provisions of this part to establish the reporting obli15 gations of the person making the structured settlement

16 payments in the event of a structured settlement factoring

17 transaction. The provisions of section 3405 regarding

18 withholding shall not apply to the person making the

19 structured settlement payments in the event of a struc20 tured settlement factoring transaction.

21 ‘‘(c) DEFINITION.—For purposes of this section, the

22 term ‘acquirer of the structured settlement payment

23 rights’ shall include any person described in section

24 7701(a)(1).’’
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1 SEC. 4. EFFECTIVE DATE.

2 The amendments made by this Act shall be effective

3 with respect to structured settlement factoring trans4 actions (as defined in section 5891(c)(3) of the Internal

5 Revenue Code of 1986, as added by this Act) occurring

6 after the date of enactment of this Act.

Æ