Qualified Settlement Fund (QSF) Creation - List of Key Points Lawyers Need to Know
Published
Aug 29, 2024
Updated
1. Court Approval is Not Mandatory
- Court approval to create a Qualified Settlement Fund is NOT required.
- IRC § 468B-1(c)(1) allows non-court “governmental authorities” to approve the creation.
2. Governmental Authority Approval
- QSFs can be approved by various governmental entities, including federal, state, or local agencies.
- The approving authority oversees QSF administration to ensure compliance with the judicial award terms and associated regulations.
3. IRS Involvement in Approval Process
- The IRS plays a role in supervising QSFs through tax regulations, rules, and EIN issuance.
- The QSF administrator must ensure compliance with IRS requirements for QSF establishment and administration.
4. Establishing
- Parties must petition a governmental authority to create and approve establishment.
- The authority reviews the proposed trust agreement for qualification requirement compliance.
5. Advantages Beyond Tax Benefits
- QSFs provide tax benefits for both the plaintiff and defendant, provide timing flexibility, and reduce administrative burdens.
- They also facilitate lien satisfaction and the resolution of any secondary disputes.
6. Streamlined Creation Options
- Traditional court-established methods can be time-consuming and costly.
- Platforms like QSF 360 offer quicker, more affordable solutions with experienced, qualified settlement fund administration.
7. IRS Filing Requirements
- The qualified settlement fund administrator must file annually Form 1120-SF (U.S. Income Tax Return for Settlement Funds).
- Form 1041 (U.S. Income Tax Return for Estates and Trusts) is not applicable.
8. Life Cycle
- QSFs operate on a calendar year basis and begin life upon the governmental authority’s approval.
- The fund administrator must ensure that the fund fulfills all IRS requirements regardless of whether the funding has occurred.
This listicle provides a summary overview. Always consult with experienced QSF administration professionals for specific guidance on Qualified Settlement Fund administration.
