I

106TH CONGRESS

2D SESSION H. R. 5421

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 HOUSE OF REPRESENTATIVES

OCTOBER 6, 2000

Mr. SHAW (for himself and Mr. STARK) introduced the following bill; which

was referred to the Committee on Ways and Means

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.

4 This Act may be cited as the ‘‘Structured Settlement

5 Protection Act’’.
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1 SEC. 2. IMPOSITION OF EXCISE TAX ON PERSONS WHO AC2 QUIRE STRUCTURED SETTLEMENT PAY3 MENTS IN FACTORING TRANSACTIONS.

4 (a) IN GENERAL.—Subtitle E of the Internal Rev5 enue Code of 1986 is amended by adding at the end the

6 following new chapter:

7 ‘‘CHAPTER 55—STRUCTURED

8 SETTLEMENT FACTORING TRANSACTIONS

‘‘Sec. 5891. Structured settlement factoring transactions.

9 ‘‘SEC. 5891. STRUCTURED SETTLEMENT FACTORING TRANS10 ACTIONS.

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

12 on any person who acquires directly or indirectly struc13 tured settlement payment rights in a structured settle14 ment factoring transaction a tax equal to 40 percent of

15 the factoring discount as determined under subsection

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

17 ‘‘(b) EXCEPTION FOR CERTAIN APPROVED TRANS18 ACTIONS.—

19 ‘‘(1) IN GENERAL.—The tax under subsection

20 (a) shall not apply in the case of a structured settle21 ment factoring transaction in which the transfer of

22 structured settlement payment rights is approved in

23 advance in a qualified order.
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1 ‘‘(2) QUALIFIED ORDER.—For purposes of this

2 section, the term ‘qualified order’ means a final

3 order, judgment, or decree which—

4 ‘‘(A) finds that the transfer described in

5 paragraph (1)—

6 ‘‘(i) does not contravene any Federal

7 or State statute or the order of any court

8 or responsible administrative authority,

9 and

10 ‘‘(ii) is in the best interest of the

11 payee, taking into account the welfare and

12 support of the payee’s dependents, and

13 ‘‘(B) is issued—

14 ‘‘(i) under the authority of an applica15 ble State statute by an applicable State

16 court, or

17 ‘‘(ii) by the responsible administrative

18 authority (if any) which has exclusive ju19 risdiction over the underlying action or

20 proceeding which was resolved by means of

21 the structured settlement.

22 ‘‘(3) APPLICABLE STATE STATUTE.—For pur23 poses of this section, the term ‘applicable State stat24 ute’ means a statute providing for the entry of an
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1 order, judgment, or decree described in paragraph

2 (2)(A) which is enacted by—

3 ‘‘(A) the State in which the payee of the

4 structured settlement is domiciled, or

5 ‘‘(B) if there is no statute described in

6 subparagraph (A), the State in which either the

7 party to the structured settlement (including an

8 assignee under a qualified assignment under

9 section 130) or the person issuing the funding

10 asset for the structured settlement is domiciled

11 or has its principal place of business.

12 ‘‘(4) APPLICABLE STATE COURT.—For pur13 poses of this section—

14 ‘‘(A) IN GENERAL.—The term ‘applicable

15 State court’ means, with respect to any applica16 ble State statute, a court of the State which en17 acted such statute.

18 ‘‘(B) SPECIAL RULE.—In the case of an

19 applicable State statute described in paragraph

20 (3)(B), such term also includes a court of the

21 State in which the payee of the structured set22 tlement is domiciled.

23 ‘‘(5) QUALIFIED ORDER DISPOSITIVE.—A quali24 fied order shall be treated as dispositive for purposes

25 of the exception under this subsection.
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1 ‘‘(c) DEFINITIONS.—For purposes of this section—

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

3 ‘structured settlement’ means an arrangement—

4 ‘‘(A) which is established by—

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

6 payment of damages excludable from the

7 gross income of the recipient under section

8 104(a)(2), or

9 ‘‘(ii) agreement for the periodic pay10 ment of compensation under any workers’

11 compensation act excludable from the

12 gross income of the recipient under section

13 104(a)(1), and

14 ‘‘(B) under which the periodic payments

15 are—

16 ‘‘(i) of the character described in sub17 paragraphs (A) and (B) of section

18 130(c)(2), and

19 ‘‘(ii) payable by a person who is a

20 party to the suit or agreement or to the

21 workers’ compensation claim or by a per22 son who has assumed the liability for such

23 periodic payments under a qualified assign24 ment in accordance with section 130.
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1 ‘‘(2) STRUCTURED SETTLEMENT PAYMENT

2 RIGHTS.—The term ‘structured settlement payment

3 rights’ means rights to receive payments under a

4 structured settlement.

5 ‘‘(3) STRUCTURED SETTLEMENT FACTORING

6 TRANSACTION.—

7 ‘‘(A) IN GENERAL.—The term ‘structured

8 settlement factoring transaction’ means a trans9 fer of structured settlement payment rights (in10 cluding portions of structured settlement pay11 ments) made for consideration by means of

12 sale, assignment, pledge, or other form of en13 cumbrance or alienation for consideration.

14 ‘‘(B) EXCEPTION.—Such term shall not

15 include—

16 ‘‘(i) the creation or perfection of a se17 curity interest in structured settlement

18 payment rights under a blanket security

19 agreement entered into with an insured de20 pository institution in the absence of any

21 action to redirect the structured settlement

22 payments to such institution (or agent or

23 successor thereof) or otherwise to enforce

24 such blanket security interest as against
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1 the structured settlement payment rights,

2 or

3 ‘‘(ii) a subsequent transfer of struc4 tured settlement payment rights acquired

5 in a structured settlement factoring trans6 action.

7 ‘‘(4) FACTORING DISCOUNT.—The term ‘fac8 toring discount’ means an amount equal to the ex9 cess of—

10 ‘‘(A) the aggregate undiscounted amount

11 of structured settlement payments being ac12 quired in the structured settlement factoring

13 transaction, over

14 ‘‘(B) the total amount actually paid by the

15 acquirer to the person from whom such struc16 tured settlement payments are acquired.

17 ‘‘(5) RESPONSIBLE ADMINISTRATIVE AUTHOR18 ITY.—The term ‘responsible administrative author19 ity’ means the administrative authority which had

20 jurisdiction over the underlying action or proceeding

21 which was resolved by means of the structured set22 tlement.

23 ‘‘(6) STATE.—The term ‘State’ includes any

24 possession of the United States.

25 ‘‘(d) COORDINATION WITH OTHER PROVISIONS.—
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1 ‘‘(1) IN GENERAL.—If the applicable require2 ments of sections 72, 104(a) (1) and (2), 130, and

3 461(h) were satisfied at the time the structured set4 tlement was entered into, the subsequent occurrence

5 of a structured settlement factoring transaction shall

6 not affect the application of the provisions of such

7 sections to the parties to the structured settlement

8 (including an assignee under a qualified assignment

9 under section 130) in any taxable year.

10 ‘‘(2) NO WITHHOLDING OF TAX.—The provi11 sions of section 3405 regarding withholding of tax

12 shall not apply to the person making the payments

13 in the event of a structured settlement factoring

14 transaction.’’.

15 (b) CLERICAL AMENDMENT.—The table of chapters

16 for subtitle E of such Code is amended by adding at the

17 end the following new item:

‘‘CHAPTER 55. Structured settlement factoring transactions.’’.

18 (c) EFFECTIVE DATES.—

19 (1) IN GENERAL.—The amendments made by

20 this section (other than the provisions of section

21 5891(d) of the Internal Revenue Code of 1986, as

22 added by this section) shall apply to structured set23 tlement factoring transactions (as defined in section

24 5891(c) of such Code as adopted by this section) en-
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1 tered into on or after the 30th day following the

2 date of the enactment of this Act.

3 (2) CLARIFICATION OF EXISTING LAW.—Section

4 5891(d) of such Code (as so added) shall apply to

5 transactions entered into before, on, or after such

6 30th day.

7 (3) TRANSITION RULE.—In the case of a struc8 tured settlement factoring transaction entered into

9 during the period beginning on the 30th day fol10 lowing the date of the enactment of this Act and

11 ending on July 1, 2002, no tax shall be imposed

12 under section 5891(a) of such Code if—

13 (A) the structured settlement payee is

14 domiciled in a State (or possession of the

15 United States) which has not enacted a statute

16 providing that the structured settlement fac17 toring transaction is ineffective unless the

18 transaction has been approved by an order,

19 judgment, or decree of a court (or where appli20 cable, a responsible administrative authority)

21 which finds that such transaction—

22 (i) does not contravene any Federal or

23 State statute or the order of any court (or

24 responsible administrative authority), and
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1 (ii) is in the best interest of the struc2 tured settlement payee or is appropriate in

3 light of a hardship faced by the payee, and

4 (B) the person acquiring the structured

5 settlement payment rights discloses to the

6 structured settlement payee in advance of the

7 structured settlement factoring transaction the

8 amounts and due dates of the payments to be

9 transferred, the aggregate amount to be trans10 ferred, the consideration to be received by the

11 structured settlement payee for the transferred

12 payments, the discounted present value of the

13 transferred payments including the present

14 value as determined in the manner described in

15 section 7520 of such Code, and the expenses re16 quired under the terms of the structured settle17 ment factoring transaction to be paid by the

18 structured settlement payee or deducted from

19 the proceeds of such transaction.

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