Understanding the tax implications of your settlement is crucial. Learn how to minimize tax liability and optimize your financial outcome with practical strategies and professional tax advice.
In the aftermath of winning or settling a lawsuit, it is essential to understand the potential federal and state income tax implications and how to avoid paying taxes on settlement money. While some settlements may be subject to federal and state income taxes, there are strategies you can employ to minimize your tax liability, such as the Plaintiff Recovery Trust. By familiarizing yourself with the rules and regulations surrounding taxable settlements, you can make informed decisions and potentially reduce your tax burden. In this comprehensive guide, we’ll explore various factors that affect the taxability of lawsuit settlements and provide actionable tips to help you navigate the complex world of taxes on settlement money.
According to the Internal Revenue Code (IRC) Section 61, all payments received from any source are considered gross income unless a specific exemption exists. This general rule applies to lawsuit settlements as well. However, IRC Section 104(a)(2) excludes taxable income for certain types of settlements and awards. In determining the taxability of a settlement, it’s crucial to consider the purpose for which the settlement or award was received. Not all amounts received from a settlement are exempt from federal and state income taxes, so it’s essential to analyze the specific circumstances surrounding each settlement payment.
When identifying which settlements are tax-exempt, it’s essential to understand the IRS’ key criteria. The following factors play a significant role in determining the taxability of a lawsuit settlement:
Settlements related to physical injuries or illnesses, where there is observable bodily harm, are generally not considered taxable by the IRS. Compensation for medical expenses, lost wages, and pain and suffering from physical injuries falls under this category. These settlements are often tax-exempt, relieving individuals who have suffered physical harm or illness.
While settlements for physical injuries or illnesses are tax-exempt, emotional distress awards are typically subject to taxes. However, if the emotional distress is directly related to the physical injury or illness caused by the accident, it may still qualify for tax-exempt status. It’s essential to establish a clear connection between the emotional distress and the physical injury or illness to determine the taxability of the settlement.
Settlements designated explicitly for medical expenses are generally not taxable. However, if you have previously deducted these medical expenses on your tax return, the corresponding settlement amount will be subject to taxes under the IRS “tax benefit rule.” This rule ensures that you do not receive a double tax benefit by deducting medical expenses and excluding settlement proceeds related to those expenses.
Punitive damages, awarded to punish the defendant for their wrongdoing, are almost always taxable. Whether the underlying case involves physical injuries, the IRS considers punitive damages taxable income. It’s important to note that only the portion allocated to compensatory damages may be eligible for tax-exempt status if the settlement includes compensatory and punitive damages.
The tax treatment of legal fees depends on the nature of the settlement. If your settlement is tax-exempt, the legal fees associated with the case will not affect your taxable income. However, if your settlement is taxable, you may owe taxes on the full settlement amount, even if the defendant pays your attorney directly. It’s crucial to consider the tax implications of legal fees when negotiating settlement agreements.
Now that you understand the factors that determine the taxability of lawsuit settlements, let’s explore some practical strategies to minimize your settlement tax liability:
During settlement negotiations, you may have the opportunity to allocate a more significant portion of the settlement to non-taxable award categories, such as physical injuries or illnesses. By strategically negotiating the allocation of damages, you can potentially reduce the taxable portion of your settlement and minimize your overall tax liability.
Receiving a sizeable taxable settlement in a single year can push you into a higher tax bracket, resulting in higher taxes. Consider negotiating for structured settlement payments spread over multiple years to avoid this potential tax burden. By receiving smaller payments over time, you can potentially reduce the portion of your income subject to higher tax rates.
Qualified Settlement Funds (QSFs), like QSF 360, provide a mechanism to defer taxes on settlement proceeds. By establishing a QSF, the settlement funds can be held in a special statutory trust, allowing you to defer tax liability until later. QSFs offer flexibility and are particularly useful for individuals with complex settlement arrangements or ongoing litigation.
Depending on the nature of your claim, you may be able to treat a portion of your settlement as capital gains instead of ordinary income. If your settlement involves damage to property, such as a home or business, you might qualify for capital gains treatment. Consult a tax professional to determine if this strategy applies to your situation.
Navigating the intricacies of tax law can be challenging, especially regarding lawsuit settlements. To ensure you are taking advantage of all available tax-saving opportunities, it’s advisable to seek professional tax advice. An experienced tax professional can guide you through the complexities of tax planning, help you understand the specific tax implications of your settlement, and assist you in optimizing your tax strategy.
As discussed in Why Taxes on Lawsuit Settlements Are Higher Than You Think, one of the most significant tax traps for plaintiffs is your taxation of attorney fees. Suppose you are a plaintiff represented by a contingent fee lawyer. In that case, the IRS considers you to have received 100% of the money recovered, even if the defendant pays your lawyer directly. This “tax doctrine” means that, in most cases, you will be taxed on the entire settlement amount, even if a portion goes to your attorney. For example, if you settle a lawsuit for $100,000, and your lawyer takes $40,000 as a contingency fee, you will still be taxed on the total $100,000.
Pro Tip: There is an effective solution for many circumstances – the Plaintiff Recovery Trust – but it must be in place before the settlement or judicial award is finalized.
Winning or settling a lawsuit is a significant achievement, but it’s crucial to understand the potential tax implications of your settlement. In many circumstances, the Plaintiff Recovery Trust may assist in minimizing the tax burden.
By familiarizing yourself with the rules and regulations surrounding taxable settlements, you can make informed decisions to minimize tax liability. Remember to consider factors such as physical injury or sickness, emotional distress, punitive damages, and legal fees when assessing the taxability of your settlement. Employing strategies like allocating damages appropriately, spreading payments over time, and seeking professional tax advice can help you navigate the complexities of taxes on lawsuit settlements and optimize your overall financial outcome.
The following is an informational resource for financial planners, attorneys, and settlement planners regarding how much control a trustee should have and when this control crosses the line into excess, potentially compromising the trust’s intentions and the beneficiaries’ interests.
The following is an informational resource for financial planners, attorneys, and settlement planners regarding how much control a trustee should have and when this control crosses the line into excess, potentially compromising the trust’s intentions and the beneficiaries’ interests.
By acting as fiduciaries to manage the assets within a trust to benefit the beneficiaries, trustees carry the weight of significant responsibility. In the case of a Special Needs Trust (“SNT”) or a Settlement Protection Trust (“SPT”), the duty is even greater. But precisely how much control should a trustee have? And when does this control cross the line into excess, potentially compromising the trust’s intentions and the beneficiaries’ interests? These questions are at the heart of trust administration and planning conversations worldwide.
This article explores, compares, and contrasts the differences between a “self-empowering” approach to trust administration and the “helicopter mom” model of hyper-supervision of the life choices of the beneficiary by an overzealous trustee.
A trustee is appointed to administer a trust, a legal entity created to hold assets on behalf of a beneficiary or beneficiaries. The trustee’s primary role is to manage these assets in the best interest of the beneficiary or beneficiaries, following the stipulations laid out in the trust agreement. This may involve making investment decisions, developing a spending plan, distributing assets, preparing tax returns, maintaining accurate records, and overseeing the life decisions of the beneficiary or beneficiaries.
In the extremely rare case of a compromised beneficiary with no guardian, this “absolute” level of control might be in order – but in practice, some trustees apply their “guiding hand” to every element of every trust. However, such autocratic supervision is rarely in the best interest of a trust’s beneficiary or beneficiaries. When trustees overmanage and interfere with a competent beneficiary, the trustee usually benefits with higher fees – or enjoys the perverse satisfaction of exercising control over such beneficiary. In effect, these “proactive” trustees act as the “mom” of the beneficiary, judging the beneficiary’s life choices and deciding what the beneficiary should be doing in the trustee’s opinion.
Let us look at actual examples.
While a trustee needs a certain level of control to effectively manage the trust, too much power can lead to issues. The trustee’s management needs to be balanced with the rights and interests of the beneficiaries. Best practices advise trustees to empower competent beneficiaries, be transparent about what impact the beneficiaries’ requests, actions, and decisions may trigger, and prioritize the needs of the beneficiaries over their own.
The role of a trustee is not intended to be that of a social worker, much less a “mom.” Yet, it is not uncommon, particularly with pooled trusts, that social workers, with no professional fiduciary licenses or training, act to manage the lives of the beneficiaries. Case management is not the role of a trustee. If hands-on case management is indeed needed and the beneficiary is competent, then a discussion with the beneficiary addressing the fact that the trust could pay for independent case management resources to assist the beneficiary is likewise necessary. The trustee directly providing such case management services may create irrevocable conflicts.
Excessive trustee control can present several challenges and risks. When a trustee has too much power, it can lead to a conflict of interest should the trustee make decisions that benefit themselves rather than the beneficiaries. Such actions often border on self-dealing, where the trustee uses trust assets for personal gain, favoritism, or where the trustee unfairly prioritizes one beneficiary over others.
Overreach by a trustee can also manifest in unnecessary or excessive fees. Some trustees may use their position to claim high compensation or “double-dip” by charging for multiple roles. This overreach can deplete the trust assets, leaving less for the beneficiaries. Empowering beneficiaries to make competent decisions with information and enabling guidance is the proper role of the trustee.
Trustees who also serve as accountants, financial advisors, investment managers, or attorneys for the trust need to exercise caution. These situations give rise to conflict-of-interest issues, particularly if the trustee charges separately for their professional services. Such trustees must maintain clear and detailed records.
The balance of trustee control is a delicate issue, and it’s crucial to adhere to best practices to lessen the trustee’s control and empower the beneficiary to avoid conflicts and ensure the trust operates as intended.
Regular communication and transparency are key. Trustees should keep beneficiaries updated on trust activities and any changes, including compensation. This not only builds trust but also provides an opportunity for beneficiaries to voice needs, concerns, or objections.
The selection of the trustee is crucial. Choosing someone trustworthy, knowledgeable, and capable of effectively managing the trust with the stated mission and a track record of empowering the beneficiary is essential.
The rights of beneficiaries should be a paramount consideration. Trustees should make decisions in the best interest of the beneficiaries and per the trust terms.
Trustee control is a complex and nuanced issue that requires careful consideration and management. By maintaining transparency, limiting control, making prudent decisions to empower the beneficiary, and prioritizing the interests of the beneficiaries, trustees can strike the right balance and ensure the trust serves its intended purpose.
For more detailed information on trustee services that empower beneficiaries and focus on fulfilling your needs and desires, visit www.easternpointtrust.com. We provide solutions tailored to your situation and fully transparent information about trust administration.
Finally, remember that trust administration is a complex process that requires attention to detail, a strong understanding of financial and legal concepts, and a commitment to acting in the best interests of the trust’s beneficiaries. By educating yourself about the process and seeking professional advice when needed, you can help ensure that your trust serves its intended purpose and provides for your loved ones in the most effective manner possible.
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Discover Qualified Settlement Funds (QSFs) taxation rules, including Form 1120-SF filing, tax accounting, and key definitions.
Qualified Settlement Funds (QSFs) have increasingly become pivotal in resolving lawsuits, particularly for personal injury, wrongful death, and property damage claims. QSFs provide a tax-efficient vehicle for the settlement of claims, facilitating smoother and more efficient resolutions. However, the taxation rules surrounding QSFs are intricate, necessitating a comprehensive understanding for practical usage. This guide sheds light on the pertinent aspects of QSF taxation and the associated reporting.
QSFs have emerged as a crucial instrument for resolving various types of claims in legal settlements. QSFs, established under Section 1.468B-1 et seq. of the Internal Revenue Code, manage the proceeds from a legal settlement (or judicial award) and offer substantial benefits to both plaintiffs and defendants. These benefits include tax deferral opportunities and the ability to structure payments over time.
Except as provided for in §1.468B-5(b), a QSF is considered a corporation for tax treatment purposes. Any tax imposed under §1.468B-2(a) is thus levied as a tax imposed by §11.
A QSF is taxed on its “modified gross income.” The term modified gross income is generally comprised of the investment income generated by a QSF. Moreover, settlement payment amounts transferred to a QSF to resolve or satisfy a liability for which a QSF is established are excluded from a QSF’s gross income.
A deduction against modified gross income is allowed for administrative costs and other incidental costs and expenses incurred in administrating the operation of the QSF. Deductible expenses may include administrative costs, such as accounting, legal, and other ministerial expenses as well as state and local taxes, relating to the QSF. Also, the costs associated with the determination and notification of claimants and claims administration are deductible.
Note: Administrative costs and other miscellaneous expenses do not include legal fees incurred by or on behalf of claimants and are thus not deductible.
IRS Form 1120-SF is an essential component in the taxation process of a QSF. It is used to report the transfers received, income generated, deductions claimed, and distributions made; and to calculate and report the income tax liability of a QSF.
The QSF trustee or administrator must prepare and file the income tax return Form 1120-SF not later than the 15th day of the 4th month following the end of its tax year. There are exceptions for QSFs with a fiscal tax year ending on June 30 and for QSFs with a short tax year ending in June. In those cases, the QSF must file its 1120-SF by the 15th day of the 3rd month following the end of their tax year.
Private Delivery Services (PDSs) can meet the “timely mailing as timely filing/paying” rule for tax returns and payments. However, it’s essential to note that PDSs cannot deliver items to P.O. boxes, necessitating the use of the U.S. Postal Service for such deliveries.
The return must be signed and dated by the trustee or administrator of the QSF. If an employee completes Form 1120-SF, the paid preparer’s space should remain empty. Anyone who prepares the form but doesn’t charge the QSF should not complete that section.
Note: A paid preparer may sign original or amended returns using a rubber stamp, mechanical device, or computer software.
The preparer must complete the required preparer information, sign the return in the designated space, and provide a copy of the return to the trustee or administrator.
If a QSF wants to permit the IRS to discuss its tax return with the paid preparer, it can check the “Yes” box in the signature area of the return. This authorization applies only to the individual whose signature appears in the “Paid Preparer Use Only” section of the QSFs return and does not apply to the firm.
The authorization allows the IRS to contact the paid preparer to answer any questions that may arise during the processing of the return, provide any missing information from the return, get information about the processing status of the return, and respond to IRS notices about errors, offsets, and return preparation.
This authorization, however, does not allow the paid preparer to receive any refund check, bind the QSF to anything, or otherwise represent the QSF before the IRS. The authorization automatically ends on the due date (excluding extensions) for filing the QSF’s tax return.
To ensure correct processing, include all schedules alphabetically and other forms in numerical order after Form 1120-SF. If the return requires more space for forms or schedules, separate sheets are allowable if the pages are the same size and format as the printed forms.
The Form 1120-SF return should be filed at the applicable IRS address, which (as of this writing) is as follows:
Department of the Treasury
InternalRevenue Service Center
Ogden, UT 84201-0012
The taxes are due and payable in full no later than the 15th day of the 4th month after the end of the tax year.
QSFs must use electronic funds transfers to make all federal tax deposits. These transfers are payable using the Electronic Federal Tax Payment System (EFTPS). However, the QSF can also arrange for a tax professional, financial institution, payroll service, or other trusted third party to make the deposits.
Generally, a QSF must make installment payments of estimated tax if it expects its total tax for the year (less applicable credits) to be $500 or more. The installments are due by the 15th day of the tax year’s 4th, 6th, 9th, and 12th months.
Note: If the QSF overpaid estimated tax, it may file Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax.
Interest accrues on taxes paid late, even if there is an extension of time to file. Penalties can also be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud.
A QSF must use the accrual method of accounting. The accrual method records income and expenses when earned or incurred, regardless of when payment is received or made.
Keeping accurate and detailed records is essential for any QSF. These records support items of income, deductions, or credits on the return. The tax records must be kept for three years from the date the return is due or filed, whichever is later. Records that verify the QSF’s basis in property should be kept as long as needed to determine the basis of the original or replacement property.
In the context of QSFs, certain terms are of particular importance:
Understanding the taxation of QSFs can be a complex task.
However, platform such as QSF 360 provided by Eastern Point Trust Company provide a turnkey service which includes all of the critical aspects of tax reporting such as Form 1120-SF, filing requirements, tax payments. As always, seeking professional advice when dealing with such intricate financial matters is advisable.
A detailed exploration of Disputed Ownership Funds (DOFs), their uses, benefits, and comparison with other options like Qualified Settlement Funds (QSFs) and traditional escrow accounts. Understand when to utilize a private DOF and its advantages over other arrangements.
When there is a disagreement regarding the ownership of funds or other assets, a Disputed Ownership Fund (DOF) established pursuant to §1.468B-9 can provide a formal and secure arrangement to hold and preserve the funds or other assets until a court can resolve the claimants’ conflicting claims of ownership. This article explores various facets of DOFs, in what circumstances it is best to utilize this tool, and when other options, such as Qualified Settlement Funds (QSFs) or traditional escrow accounts, are more appropriate.
DOFs refer to amounts under contention resulting in conflicting claims of ownership. These conflicting claims of ownership can arise for numerous reasons, including disagreements over private and commercial transactions or arrangements, invoices, claims, adjustments, estates, divorce, etc.
The IRS has established that all “pooled” Court Interpleader Accounts [aka Court Registry Accounts] (Court Accounts) are DOFs. However, the inherent disadvantage of Court Accounts is that the court imposes a significant fee, typically 10% of income, on the first $240 million.
Likewise, Court Accounts have restrictive operating rules, such as required pooling of accounts and (by way of example) limiting investment options to:
“Funds on deposit with the Court are to be placed in some form of interest-bearing account, or invested in a court approved, interest-bearing instrument...”
Therefore, Court Accounts do not provide flexibility and thus may not be best suited to parties’ needs. Alternatively, when funds or other assets are in dispute, a private trust-based DOF allows the parties to customize the arrangement and benefit from a more comprehensive array of investment options. Unlike Court Accounts, a private DOF does not have investment restrictions.
Finally, FDIC insurance covers only the first $250,000 in a Court Account’s investment pool. In the event of a depositary bank’s default, as we have seen with SVB and others, the Court Account maybe be unable to recover all funds held on deposit in the failed institution. Suppose the Court Account is purchasing government bonds as they may under the rule; in that case, the liquidation of such bonds in a rising interest rate environment can result in market-based losses or a lack of liquidity to fulfill disbursements.
A private DOF can eliminate both of these types of risks.
The regulations (1.468B-9(b)(1)) define the four simple requirements for an arrangement to qualify and operate as a DOF:
(1) Disputed ownership fund means an escrow account, trust, or fund that—
(i) Is established to hold money or property subject to conflicting claims of ownership;
(ii) Is subject to the continuing jurisdiction of a court;
(iii) Requires the approval of the court to pay or distribute money or property to, or on behalf of, a claimant, transferor, or transferor-claimant; and
(iv) Is not [emphasis added] a qualified settlement fund under §1.468B–1, a bankruptcy estate (or part thereof) resulting from the commencement of a case under title 11 of the United States Code, or a liquidating trust under §301.7701–4(d) of this chapter (except as provided in paragraph (c)(2)(ii) of this section);
The regulations (§ 1.468B-9(b)(5)) also define what is “Disputed Property.”
(5) Disputed property means money or property held in a disputed ownership fund subject to the claimants’ conflicting claims of ownership;
While an escrow account can be a DOF, not all escrow accounts are DOFs; as traditional commercial escrow accounts are never DOFs. The following are the key differences:
The requirements of § 1.468B-9 do not apply to traditional escrow arrangements (Non DOFs); therefore, traditional escrow arrangements may operate outside the DOF requirements. Traditional escrow arrangements are typically used when the parties are satisfied that the funds or other assets held under the supervision and custody of an independent trustee or escrow agent are sufficiently controlled and that the ultimate distribution of those assets is safeguarded to the parties’ mutual satisfaction.
On the other hand, when the parties are at such odds or levels of distrust and conflict that they are motivated to prevent the loss of the assets and have a court adjudicate the question of ownership, then a Private DOF is the appropriate solution.
It is also essential to differentiate between a DOF and a QSF, as they are not interchangeable.
“Resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability”
Understanding Disputed Ownership Funds, when their use is appropriate, and the alternatives such as traditional escrow accounts are vital in selecting the appropriate instrument to resolve ownership disputes or prevent asset loss risks. By grasping these concepts, stakeholders can better address ownership disputes and navigate the resolution processes more efficiently.
In this detailed guide, learn about the federal tax implications of settlements and judgments, including proper tax treatment, the burden of proof, deduction disallowances, and the importance of considering tax implications.
In the ordinary course of business, it is not uncommon for individuals and organizations to find themselves involved in litigation or arbitration. As a result, settlements and judgments can occur, which may have significant tax implications. However, these implications are often overlooked or misunderstood. Understanding the federal tax treatment of settlements and judgments is crucial for both the payer and the recipient.
The proper tax treatment of a settlement or judgment largely depends on the origin of the claim. Courts often consider the question "In lieu of what were the damages awarded?" to determine the appropriate payment characterization. This characterization determines whether the payment is taxable or nontaxable and, if taxable, whether ordinary income or capital gain treatment is appropriate.
For recipients of settlement amounts, damages received as a result of a settlement or judgment are generally taxable. However, certain damages may be excludable from income, such as payments for personal physical injuries, amounts previously not taxed, cost reimbursements, recovery of capital, or purchase price adjustments. The tax treatment may also vary depending on whether the damages relate to a claim for lost profits or damage to a capital asset.
On the other hand, for the payer, the tax treatment depends on whether the payment is deductible or nondeductible, currently deductible, or required to be capitalized. Payments arising from personal transactions may be considered nondeductible personal expenses. In contrast, payments arising from business activities may be deductible under specific provisions of the Internal Revenue Code. It is important to note that certain payments may be nondeductible or be required to be capitalized.
Taxpayers bear the burden of proof for the tax treatment and characterization of a litigation payment. The language found in the underlying litigation documents, such as pleadings or a judgment or settlement agreement, is often crucial in determining the tax treatment. Supporting evidence includes legal filings, settlement agreement terms, correspondence between the parties, internal memos, press releases, annual reports, and news publications.
Tip: While various pieces of evidence can be persuasive, the Internal Revenue Service (IRS) generally views the initial complaint as the most persuasive. As such, attorneys need to be cognizant of the tax implicants of claims made in the initial filings.
When a settlement or judgment encompasses multiple claims or involves multiple plaintiffs or defendants, allocating damages becomes essential. Factors such as who made and received the payment, who was economically harmed or benefited, against whom the allegations were asserted, who controlled the litigation, and whether costs/revenue were contractually required to be shared are critically important. Also, joint and several liabilities are necessary considerations when determining the allocation.
Settlement agreements or judgments may provide for a specific allocation. The IRS generally accepts these ordered allocations. However, the IRS may challenge the allocation if the facts and circumstances indicate that the taxpayer has another purpose for the allocation, such as tax avoidance. Taxpayers, not the IRS, have the burden of proof when defending the allocation in proceedings with the IRS.
Certain deduction disallowances apply to payments and liabilities resulting from a judgment or settlement. The Tax Cuts and Jobs Act (TCJA) introduced changes to the Internal Revenue Code that disallow deductions for certain payments.
Under Section 162(f) as amended by the TCJA, deductions are disallowed for amounts paid or incurred in relation to a violation of law or an investigation or inquiry into a potential violation of law. However, there are exceptions for restitution, remediation, or compliance with the law, taxes due, and amounts paid under court orders when no government or governmental entity is a party to the suit. Recent regulations further clarify the disallowance, specifying that routine audits or inspections unrelated to possible wrongdoing are not subject to the disallowance.
Another deduction disallowance introduced by the TCJA is found in Section 162(q). This provision disallows deductions for settlements or payments related to sexual harassment or abuse subject to a nondisclosure agreement. However, it is essential to note that the disallowance does not apply to the attorneys' fees incurred by the victim.
Additional deduction disallowances include those under Section 162(c) for illegal bribes and kickbacks, and Section 162(g) for treble damages related to antitrust violations.
Established under §1.468B-1 et seq., a Qualified Settlement Fund (QSF) offers a wide variety of tax and financial planning benefits and flexibility that would not otherwise be available to a plaintiff if the settlement or judgment is paid directly to the plaintiff or their attorney.
See this link to learn more about QSFs.
Plaintiffs often keep less than half of what they should. A Plaintiff pays tax on winnings he or she keeps, and also pays tax on the portion of the winnings paid to his or her lawyer – who then again pays tax on the same money. The Plaintiff Recovery Trust avoids the Double Tax, often increasing net recoveries by 50%-150%.
See how to solve the double taxation problem and pay less taxes with this link to the Plaintiff Recovery Trust.
Taxpayers must consider the tax implications when negotiating settlement agreements or reviewing proposed court orders or judgments. Failure to do so may result in adverse and avoidable tax consequences or loss of tax management opportunities. By understanding the origin of the claim, properly allocating damages, and considering deduction disallowances, taxpayers can navigate the complexities of taxation in settlements and judgments.
The taxation of settlements and judgments is a complex area that requires careful consideration. The origin of the claim, the allocation of damages, and the deduction disallowances all play a significant role in determining tax treatment. Taxpayers must diligently understand the implications and seek professional advice when necessary. By doing so, taxpayers and their advisors can ensure compliance with tax laws and minimize potential tax liabilities.
Explore IRS regulations for QSFs, EIN requirements, and exemptions for 1099-MISC reporting. Learn about the TIN Matching Program and tax liabilities for payments to a Qualified Settlement Fund.
Tax information reporting is essential to compliance with Internal Revenue Service (IRS) regulations. It ensures accurate income reporting and facilitates the proper allocation of tax liabilities. In this guide, we will explore the requirements for furnishing employer identification numbers (EINs) and the On-Line Taxpayer Identification Number Matching Program (TIN Matching Program) administered by the IRS. We will also delve into how these requirements relate to payments made to a qualified settlement fund (QSF) to gain a thorough understanding of tax information reporting related to a QSF and the related exemptions which eliminate the requirement for 1099-Misc reporting of payments to a QSF.
Let’s start with the general rules surrounding EINs and information reporting to establish a solid foundation. Section 6109 of the Internal Revenue Code and the Treasury Regulations provide the framework for issuing tax identification numbers and furnishing them to other parties. An EIN is a unique identifier for U.S. persons, which includes domestic trusts and corporations. When making a return, every U.S. person must furnish their own identifying number as required by the IRS forms and accompanying instructions. If another person requires the TIN, you must provide such upon request – utilizing IRS Form W-9 is the preferred method.
Section 6041 of the Internal Revenue Code outlines payment information reporting requirements. This section stipulates that persons engaged in a trade or business making payments over $600 in a taxable year must furnish an information return to the IRS. However, payments made to domestic corporations are generally exempt from the information reporting requirement, with a few exceptions outlined in the IRS’ 2022 Instructions for Form 1099-MISC. For example, businesses or individuals making payments for the purchase of fish for resale, medical and health care payments, substitute payments in lieu of dividends or tax-exempt interests, and gross proceeds paid to an attorney are reportable on Form 1099-MISC.
QSFs operate to resolve or satisfy liabilities, and as previously noted, the amounts transferred to a QSF are not includable in the fund’s gross income. For income tax purposes, a QSF is taxable as a corporation, and payments to a QSF are classified as payments to a corporation[i] for information (1099) reporting purposes.
Considering the general information reporting rules, payments made to a QSF to settle a claim are not reportable on Form 1099-MISC. This reporting exemption is because such payments are excluded from the QSF’s gross income and are not subject to the reporting requirements of Section 6041. Additionally, Form 1099-MISC only requires reporting specific payments to corporations, such as (i) cash payments for the purchase of fish for resale, (ii) medical and health care payments, (iii) substitute payments in lieu of dividends or tax-exempt interests, and (iv) gross proceeds paid directly to an attorney. Therefore, payments made to a QSF do not fall under these categories and do not require 1099-MISC reporting.
In summary, there is no requirement for a payor to consider the payments to a QSF as reportable income or subject to Backup Withholding. Correspondingly, there are no requirements for a payor to issue a 1099-MISC; thus, the TIN Matching Program is not applicable.
It’s important to note that there are NO information reporting requirements for payments expressly excluded from the recipient’s gross income. For instance, when a QSF is involved, the QSF administrator is solely responsible for tax reporting associated with such payments and distributions from the QSF. Therefore, the defendant making payments from the QSF to a recipient, such as a claimant or attorney, has no obligation to file an information return; specifically, no 1099-MISC is required. Correspondingly, there is no Backup Withholding, and no TIN Matching is required.
Tip – Settlement Payments into a QSF are not taxable as §1.468B-2(b) excludes from the definition of Modified Gross Income the amounts transferred to satisfy the settlement/order liability.
§1.468B-2
(b) Modified gross income. The “modified gross income” of a qualified settlement fund is its gross income, as defined in section 61, computed with the following modifications—
(1) In general, amounts transferred to the qualified settlement fund by, or on behalf of, a transferor to resolve or satisfy a liability for which the fund is established are excluded from gross income. However, dividends on stock of a transferor (or a related person), interest on debt of a transferor (or a related person), and payments in compensation for late or delayed transfers, are not excluded from gross income.
Accordingly, as the settlement payments are not taxable to the QSF, there are no circumstances whereby any 1099-Misc reporting requirement or any associated applicable Backup Withholding is applicable. Thus, there is no need for any TIN Matching in any circumstances associated with QSFs.
Tip – It is improper for the transferor (payors) into a QSF to perform any look-through 1099-Misc reporting requirement or associated applicable Backup Withholding. To perform such would result in willful inaccurate/double income reporting violating the code.
There is no TIN Matching requirement for QSFs as there is no tax liability to the QSF for the defendant’s settlement/award payment as provided for in §1.468B-2(b).
Since the IRS’ TIN Matching Program only applies to assist payors filing Form 1099 associated with taxable income, a QSF payor has no Backup Withholding or payee certification via TIN Matching obligations. As stated, the payments received by a QSF are not taxable income, and there is no 1009-MISC reporting requirement. Therefore, a QSF is not subject to Backup Withholding as the settlement/award payment is not taxable income to the QSF; and hence, there is no 1099-MISC or payee certification via TIN Matching obligation.
Tip – Caution should be given to not confuse the requirements of other types of payments as opposed to payments to QSFs. Note that in addition to the stated exemptions for QSFs, Backup Withholding and payee certification via TIN Matching are moot for payments arising from personal injury claims (§104(a)(2)) as the underlying settlement/claims are non-taxable and, as such, there could never be any applicable 1099-MISC reporting requirement or Backup Withholding in any circumstances.
Defendants asserting the requirement for 1099-MISC reporting or payee certification via TIN Matching are operating outside the applicable code. Such payors are implementing unnecessary and undefendable processes, which only serve the purpose of delaying funding the QSF and fulfilling their payment obligations.
Additionally, for payments to a QSF, the TIN Matching Program is not applicable since the QSF administrator (§1.468B-2(l)(2) see endnotes), is responsible for the entirety of the tax reporting, including but not limited to all applicable 1099 reporting and Backup Withholding associated with payments from a QSF to claimants.
To avoid bad faith payment delays, payors should understand the rules and requirements surrounding EINs, W-9s, information reporting, the TIN Matching Program, and the exemptions applicable to QSFs. By adhering to these regulations, businesses can ensure compliance and not gratuitously impose processes outside the code’s requirements which artificially delay payment of settlement/award obligations and which may result in additional liabilities.
Financial institutions' obligations, client permissions, and legal consequences related to KYC and KYB information requests, including fraud, false statements, identity theft, money laundering, and tax evasion. Understand the critical provisions and penalties under relevant laws.
Financial institutions have the ability to ask for KYC and KYB information from clients at any time as part of the financial institution’s Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) obligations and policies.
A common misunderstanding is that financial institutions need to ask the client’s permission or seek the agreement of the client to request the information, and that the financial institution is required to justify its ongoing and additional information demands. This is not so. Continuing and additional information demands may stem from ongoing reviews as part of the financial institution’s ongoing CDD and AML audits/examinations or arise from EDD triggered by unusual or suspicious transactional activity, changes to the entities structures, ownership, or control, or negative news or information that comes to the attention of the financial institution. Financial institutions do not need to ask the client’s permission or seek the agreement of the client to request information, and financial institutions are not required to justify their ongoing additional information demands.
Some believe they can object to CDD or EDD requests or intentionally hide, withhold, or misrepresent KYC/KYB information. Such actions, especially if done intentionally, can violate several laws. Here are some of the most relevant ones:
Bank Fraud: In many jurisdictions, including the United States, intentionally deceiving a bank, credit union, or trust company to gain monetary benefits constitutes fraud. Bank Fraud is usually a felony punishable by fines and imprisonment.
False Statements: Under United States federal law, knowingly making false statements to federally insured banks, credit unions, and broker-dealers may be a crime.
Identity Fraud or Identity Theft: If a person hides information about their identity or uses someone else’s identity without their permission, it’s considered identity fraud or theft. This may include using a web of shell companies, trusts, fictitious entities, or strawmen to conduct financial transactions in the name of another for one’s benefit.
Money Laundering: A person hiding information may be part of a money laundering scheme if it is in furtherance of a conspiracy or facilitation to disguise the origins of money or for tax evasion.
For example, 18 USC §1956 is a United States federal law that pertains to money laundering. Money laundering refers to the process of making illegally-gained proceeds appear legal. Here’s an analysis of the critical provisions of the law:
Financial transactions: This section of the code makes it illegal to conduct or attempt to intentionally conduct a financial transaction involving proceeds from specified unlawful activities to promote the carrying on of specified criminal activity or to engage in tax evasion or tax fraud by actions intended to engage in conduct constituting a violation of section 7201 or 7206 of the Internal Revenue Code of 1986 as amended.
International and interstate commerce: The law also applies to transactions involving the movement of funds by wire, or other means that either cross state lines or national borders.
“Knowing” nature of the transaction: A critical aspect of the law is that the person involved in the transaction must know that the property involved represents the proceeds of some form of unlawful activity.
Penalties: Violations of 18 USC §1956 can result in severe penalties, including fines of up to $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for up to twenty (20) years, or both.
Conspiracy: This law also makes it a crime to conspire to commit any of the offenses defined in this section.
This law is one of the main tools used by federal prosecutors in the United States to combat organized crime, drug trafficking, tax evasion, and financial fraud, because it allows them to prosecute the illegal activities that generate large sums of money and the subsequent efforts to conceal these activities.
Tax Evasion: Hiding income or assets or conducting transfer payment(s) through a shell company(ies) to evade taxes can also be a criminal offense.
Know Your Customer (KYC) Violations: Financial institutions must implement KYC procedures to prevent identity theft, financial fraud, money laundering, and terrorist financing. If a customer provides false or misleading information or intentionally omits essential information, they could be implicated in a KYC violation, resulting in penalties, account closure, and various potential legal consequences.
Please note that the preceding are only general explanations. The actual laws are detailed and nuanced, and their application can vary depending on the case’s specifics.
Also, it’s worth noting that even if a person’s actions don’t amount to a criminal offense, they could still face account closures, negative news, and civil penalties, such as lawsuits or fines, for providing false information to a bank. It’s always best to be entirely truthful and transparent when dealing with financial institutions and seek the advice of competent legal professionals.
Delve into the critical legislation criminalizing financial transactions involving proceeds from illegal activities and its intersection with tax laws. Learn about penalties, sentencing, legal procedures, and constitutional considerations.
In the context of federal legislation in the United States, 18 U.S.C. § 1956, often referred to as the Money Laundering Control Act, constitutes a critical piece of legislation pertaining to the laundering of monetary instruments [1][2]. Given its intersection with tax laws, particularly sections 7201 and 7206 of the Internal Revenue Code of 1986, it offers a comprehensive legal framework to combat the menace of money laundering and associated tax evasion. This article delves into an in-depth consideration of these provisions and their interplay [2][3]. This following discussion aims to provide a comprehensive overview of the law, its various elements, and the penalties involved.
18 U.S.C. § 1956 et seq. primarily criminalizes financial transactions that involve proceeds from specified unlawful activities. Essentially, this implies that if a person, with knowledge that a property involved in a financial transaction represents the proceeds of some form of illegal activity, conducts or attempts to conduct such a financial transaction, he or she would be violating this law. Accordingly, United States prosecutors frequently use 18 U.S.C. § 1956 accompanied with linked allegations of mail or wire fraud, tax fraud, tax evasion and bank fraud.
The law is applicable to scenarios where the individual conducts a financial transaction with the intent to either promote the carrying on of specified unlawful activities or to engage in conduct constituting a violation of certain sections of the Internal Revenue Code of 1986 [1][2].
Furthermore, it is applicable in instances where the individual knowingly designs the transaction, in whole or part, to either conceal or disguise the nature, location, source, ownership, or control of the proceeds of specified unlawful activity, or to avoid a transaction reporting requirement under state or federal law. 18 U.S.C. § 1956 makes it unlawful for anyone knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, to conduct or attempt to conduct such a financial transaction [2]. Two main intentions are identified under this law. The first pertains to the promotion of the carrying on of specified unlawful activity. The second deals with the intent to engage in conduct constituting a violation of section 7201 or 7206 of the Internal Revenue Code of 1986, effectively bridging the gap between money laundering and tax laws.
Section 7201 of the Internal Revenue Code deals with tax evasion, where an individual willfully attempts to evade or defeat any tax imposed by the federal laws [3]. The potential defenses for tax evasion can be insurmountable evidence of the taxpayer's ignorance of a due tax liability or an honest belief that the taxpayer was not violating any of the provisions of the tax laws.
On the other hand, section 7206 pertains to 'tax perjury' and covers fraudulent activities such as making false statements on a tax return or providing fraudulent information [3]. The critical element of this violation is the intent to defraud, where the accused knowingly provides incorrect information.
18 U.S.C. § 1956 effectively incorporates violations of tax laws as a predicate offense for money laundering. If an individual knowingly engages in a financial transaction involving proceeds obtained from violations of sections 7201 or 7206 of the Internal Revenue Code, they may be found guilty of money laundering under 18 U.S.C. § 1956. This intersection provides a robust mechanism for law enforcement agencies to combat tax evasion schemes that employ sophisticated money laundering techniques.
The legislation also addresses situations where an individual transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or vice versa. This is subject to the condition that the monetary instrument or funds involved in the transportation, transmission, or transfer represent the proceeds of some form of unlawful activity.
In essence, the law not only contributes significantly to the fight against organized crime, drug trafficking, tax evasion and other financial fraud but also serves as a deterrent to entities that might be tempted to engage in such illegal activities. It facilitates the prosecution of illegal activities that generate large sums of money and the subsequent attempts to conceal these activities.
In conclusion, 18 U.S. Code § 1956 is a pivotal piece of legislation that serves to discourage and penalize money laundering activities. The law is comprehensive and detailed, embodying a series of nuanced interpretations and applications that significantly contribute to its efficacy as a tool against financial crime.
Violations of 18 U.S.C. § 1956 carry severe penalties, including a fine of not more than $500,000 or twice the value of the property involved in the transaction, imprisonment for not more than twenty years, or both[2]. Sentencing for tax crimes is guided by the U.S. Sentencing Guidelines. The base offense level generally corresponds to the amount of tax loss, which equals the amount of taxes evaded by the taxpayer, excluding penalties or interest for the period in question [3].
Prosecuting tax and money laundering offenses involves intricate procedures, often entailing comprehensive investigations by the Internal Revenue Service (IRS) and other law enforcement agencies. Important constitutional considerations are at play, especially those surrounding self-incrimination, due process, and the statute of limitations for violations. In addition, section 371 of Title 18 of the U.S. Code, dealing with criminal conspiracy, often comes into play in cases involving large-scale tax fraud and money laundering.
In essence, the provisions of 18 U.S.C. § 1956, in combination with sections 7201 and 7206 of the Internal Revenue Code of 1986, form a robust legal framework for curbing money laundering and tax evasion. These laws underscore the seriousness of these offenses and their impact on society at large. By integrating tax violations into the ambit of money laundering, these provisions provide a comprehensive approach to combatting financial crime, deterring potential offenders, and maintaining economic integrity.
Qualified Settlement Funds (QSF) – Listicle of 12 Things to Know. Learn about their purpose, benefits, eligibility, tax implications, QSF administration, etc.
Qualified Settlement Funds (QSF) – Listicle of 12 Things to Know:
FOR IMMEDIATE RELEASE
[7/8/24] Joe Sharpe, ETPC President, explained, “QSFs are powerful financial tools to streamline and manage settlements, especially in complex cases. They provide tax benefits, flexibility, and efficient administration for all parties involved. With platforms like QSF 360™, creating and managing a QSF is quick, easy, and fully compliant. From establishing a QSF to understanding the roles of administrators, tax implications, and investment options, our comprehensive listicle covers all you need to know about these financial mechanisms.”
Learn the advantages of QSFs over other settlement structures, QSF regulatory oversight, and best practices for effective management. Make the most of your settlements with QSFs and ensure a smooth, compliant, and beneficial process.
Eastern Point Trust Company invites legal professionals, plaintiffs, and all interested parties to explore more and discover the transformative potential of QSFs in post-settlement dispute resolution. To read the complete listicle and learn more about the advantages of QSFs, visit https://www.easternpointtrust.com/articles/qualified-settlement-funds-listicle-of-12-things-to-know.
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The co-designer of the Plaintiff Recovery Trust, Lawrence Eisenberg, a tax attorney and founder of Forward Giving, Inc., a 501(c)(3) charity, publishes in Tax Notes an article addressing the double taxation of settlements.
The co-designer of the Plaintiff Recovery Trust, Lawrence Eisenberg, a tax attorney and founder of Forward Giving, Inc., a 501(c)(3) charity, publishes in Tax Notes an article addressing the double taxation of settlements.
[7/16/2024] — In a thought-provoking article published in Tax Notes* Lawrence J. Eisenberg, an experienced tax attorney, describes the perplexing issues affecting individual plaintiffs in litigation recoveries and considers how those issues can be addressed, including by using a charitably-based trust-based solution. The article “The Individual Plaintiff Tax Trap — A Conundrum and a Solution” delves into the intricacies of the taxation of litigation recoveries and addresses methods to mitigate the adverse tax consequences some individual plaintiffs face.
Background
Eisenberg’s article highlights the strange and often inconsistent tax treatment of individual plaintiff litigation recoveries under the Internal Revenue Code. Despite the Supreme Court’s 2005 decision in “Commissioner v. Banks”, which held that plaintiffs must report the entire recovery as taxable income—including the portion payable to attorneys—many plaintiffs (and their attorneys and advisors) remain unaware of the potential tax pitfalls when such recoveries do not fall under tax-free categories, e.g., damages for physical injuries.
The Individual Plaintiff Tax Trap
The crux of the issue lies in the deductibility of attorney’s fees. Some recoveries are tax-free, so attorney fee deductibility is not relevant, or allow for an above-the-line deduction of these fees. Other recoveries can result a “double tax”, because in those situations, the attorney fee portion of the recovery is taxable, but the attorney fee itself is not deductible. This leads to significantly diminished net recoveries. Eisenberg’s article includes a detailed example demonstrating how a plaintiff’s net recovery can be less than 10% of the total amount, with the government and attorneys each receiving several times more than the plaintiff!
A Trust-Based Solution
To address this inequity, Eisenberg proposes that a plaintiff affected by the double tax create a Plaintiff Recovery Trust (PRT). A PRT allows plaintiffs to transfer their litigation claims to a specially designed split-interest charitable trust. By doing so, the litigation claim becomes an asset of the trust, and any recovery is received by the trust, which then pays the net recovery to the trust beneficiaries, including the plaintiff. The PRT uses ordinary trust law principles and aims to achieve fairer tax treatment by separating the ownership of the litigation claim from the individual plaintiff.
Key Benefits of the Plaintiff Recovery Trust
- Equitable Tax Treatment: By treating the litigation claim as a trust asset, a Plaintiff Recovery Trust results in the plaintiff not being taxed on the portion of the recovery paid to their attorneys.
- Structured recovery: The PRT trust structure allows for a more organized and potentially tax-efficient distribution of recoveries. (It also permits the use of structured settlements as part of the solution.)
- Charitable Component: The PRT includes a charitable beneficiary, adding a philanthropic dimension to the solution.
Conclusion
Eisenberg’s article is a call to action for tax professionals and litigation attorneys to recognize and address the unfair tax treatment many individual plaintiffs face. The PRT trust-based solution offers a way to alleviate the financial burden imposed by current tax law, so that plaintiffs retain a fair share of their recoveries.
See the full article on the taxation of settlement proceeds.
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Eastern Point Trust Company is pleased to announce the release of a new guide designed to address the challenging intricacies of post-settlement litigation disputes.
Eastern Point Trust Company Unveils Comprehensive Guide on Navigating Post-Settlement Disputes and Complexities with Qualified Settlement Funds
[5/17/2024] — Eastern Point Trust Company is pleased to announce the release of a new guide designed to address the challenging intricacies of post-settlement litigation disputes. The guide focuses on utilizing Qualified Settlement Funds (QSFs), also known as 468B trusts, as a streamlined solution for efficient settlement fund management and dispute resolution.
It is not uncommon for secondary disputes to arise following a litigation settlement or court award. These disputes can range from family disagreements over their "fair share" to lawyers disputing fee splits, plaintiffs contesting attorney fees, and third-party lien holders emerging to stake claims against the litigation proceeds. Such complexities often hinder the settlement process and prolong the resolution.
Eastern Point Trust Company's newly released guide provides detailed insights into how QSFs can be employed to manage these disputes effectively. By offering a structured approach to fund management and tax compliance and providing the necessary time for informed decision-making, QSFs present a viable solution to post-settlement challenges.
Sam Kott, Vice President of Eastern Point Trust Company, emphasized the significance of the guide, stating, "This guide explores the advantages of QSFs, specifically their ability to address complex issues such as post-settlement disputes, secondary litigation, and lien resolution. The guide also provides direction on navigating post-settlement challenges and highlights the benefits of QSFs in achieving the best possible outcomes for all parties involved."
The guide delves into the various advantages of utilizing QSFs, including:
Eastern Point Trust Company invites legal professionals, plaintiffs, and all interested parties to explore the guide and discover the transformative potential of QSFs in post-settlement dispute resolution. To read the complete guide and learn more about the advantages of QSFs, visit here.
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Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements.
Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements.
FOR IMMEDIATE RELEASE
[5/17/2024] — Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements. This comprehensive guide delves into the intricate workings of taxable and non-taxable settlements, offering invaluable insights into compensatory damages, punitive damages, and the tax treatment of various settlement types.
Ms. Rachel McCrocklin, Eastern Point’s Chief Trust Officer, commented, “The guide provides a detailed understanding of the pivotal role of IRS Section 104 and the taxability of various settlement types. Our goal is to equip readers with the knowledge to make informed decisions and minimize potential tax liabilities.”
The guide explores strategic methods to minimize tax obligations on settlements, including leveraging structured settlement annuities, Plaintiff Recovery Trusts, and proper allocation in settlement agreements. It is an essential resource for individuals and businesses navigating the complex landscape of settlement taxation.
Arm yourself with knowledge, make informed decisions, and minimize potential tax liabilities with Eastern Point's newest guide.
For more information on Unveiling the Complex World of Taxable and Tax-Free Settlements, please visit https://www.easternpointtrust.com/articles/unveiling-tax-free-settlements-what-you-need-to-know or contact 855-222-7513.
CTRO
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A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
FOR IMMEDIATE RELEASE
[5/2/2024] — A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
It reviews the advantages of choosing a trust company over a traditional bank account for escrow services, emphasizing active independent oversight that enhances transaction security and integrity.
Ned Armand, CEO, noted, “The guide also highlights the critical role of an escrow agent in managing funds prudently, ensuring a smooth progression of transactions under the regulatory frameworks.” Offerors of private equity and Reg D, Reg A, Reg A+, Reg CF, and Reg S offerings are encouraged to explore this guide, available on Eastern Point Trust Company.
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In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability.
In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability. Contrasting against traditional Environmental Remediation Trusts (ERT), Eastern Point’s QSF offers unparalleled advantages, revolutionizing the approach towards environmental liability management.
FOR IMMEDIATE RELEASE
[2/27/2024] — In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability. Contrasting against traditional Environmental Remediation Trusts (ERT), Eastern Point’s QSF offers unparalleled advantages, revolutionizing the approach towards environmental liability management.
The Qualified Settlement Fund stands as a testament to expediency, with the capability to be established and funded within a mere business day, a stark contrast to the lengthy processes associated with ERTs. By swiftly assuming environmental liabilities from present and future claims under CERCLA, state, and local law, QSF ensures immediate action and resolution.
One of the most compelling aspects of QSF is its affordability, with establishment costs as low as $500. This cost-effectiveness, coupled with the tax advantages it provides over ERTs, makes QSF an attractive proposition for businesses seeking prudent financial solutions.
Flexibility is another hallmark of QSF, allowing for single-year or multi-year funding without any maximum duration constraints, ensuring adaptability to diverse business needs. Furthermore, the ability to hold real estate expands the horizons of asset management within the fund.
The benefits extend to tax optimization, with QSF accelerating the transferor's tax deduction for funds transferred to the current tax year, thereby enhancing financial planning and efficiency. Moreover, by shifting liability and associated funding transfers irrevocably to the QSF, businesses can streamline their balance sheets, mitigating risks and enhancing transparency.
In addition to these financial advantages, QSF facilitates seamless settlement agreements to capitate and resolve environmental liabilities, assuring regulators and interested parties of the irrevocable availability of funds for amelioration.
The transition to QSF not only eliminates future administrative burdens but also entrusts the fund's administration to a dedicated trustee, relieving businesses of operational complexities and enhancing focus on core activities.
In conclusion, the Qualified Settlement Fund stands as a beacon of innovation in environmental liability management, offering unmatched advantages over traditional Environmental Remediation Trusts. Its expediency, affordability, flexibility, and tax optimization capabilities redefine the landscape, empowering businesses to navigate environmental challenges with confidence and efficiency.
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Eastern Point Trust Company (“EPTC”) announced that it entered into a sponsorship with the National Forest Foundation (“NFF”) to provide grant funding in support of NFF’s mission to restore and enhance our National Forests and Grasslands.
Eastern Point Trust Company Announces Sponsorship Grants to National Forest Foundation
FOR IMMEDIATE RELEASE
[10/13/2022] — Eastern Point Trust Company (“EPTC”) announced that it entered into a sponsorship with the National Forest Foundation (“NFF”) to provide grant funding in support of NFF’s mission to restore and enhance our National Forests and Grasslands.
Working on behalf of the American public, the NFF leads forest conservation efforts and promotes responsible recreation. Its mission is founded on the belief that these lands, and all they provide, are an American treasure and vital to our communities’ health.
Rachel McCrocklin, Eastern Point’s Chief Client Officer, stated, “Eastern Point welcomes the opportunity to partner with the National Forest Foundation in support of its mission to improve and protect our national lands. A portion of Eastern Point’s revenue is dedicated to funding priority reforestation and enhanced wildlife habitat by supporting the National Forest Foundation’s 50 million for Forrest campaign.”
About Eastern Point Trust CompanyWith over three decades of trustee and trust administration experience, Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients.
Eastern Point has the benefit of practical experience and industry-leading technology, providing services to over 6,000 trusts with more than 20,000 users across the U.S. and internationally.
About The National Forest FoundationThe National Forest Foundation is the leading organization inspiring personal and meaningful connections to our National Forests, the centerpiece of America’s public lands.
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Eastern Point Trust Company (“EPTC”) announced recent successes of the Plaintiff Recovery Trust (“PRT”) solution in solving the Plaintiff Double Tax, which is the unfair result of 2017 legislation that can cut plaintiff recoveries in half.
Eastern Point Trust provides services across the U.S. and internationally.
FOR IMMEDIATE RELEASE
[11/21/2022] — Eastern Point Trust Company (“EPTC”) announced recent successes of the Plaintiff Recovery Trust (“PRT”) solution in solving the Plaintiff Double Tax, which is the unfair result of 2017 legislation that can cut plaintiff recoveries in half.
Glen Armand, Eastern Point’s CEO, expressed, “Eastern Point’s gratitude for the testimonials of Mirena Umizaj, Joseph Di Gangi, Rebekah Reedy Miller, Susan Gleason, Jennifer White, Andy Rubenstein, and Zane Aubert. By utilizing the PRT, you are the catalyst for saving plaintiffs over $30 million of federal and state taxation.”
Mr. Armand also announced Joseph Tombs as Director of Plaintiff Recovery Trusts (PRT). Mr. Armand also noted, “The contributions of Lawrence Eisenberg and Jeremy Babener for partnering on our newest settlement solution.”
Settlement and financial planners and CPAs can learn and access resources on Eastern Point’s PRT Planner Page here: https://www.easternpointtrust.com/plaintiff-recovery-trust-for-planners
About Eastern Point Trust Company
Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients across the U.S. and internationally.
With over three decades of trustee and trust administration experience, Eastern Point provides the benefits of practical experience, industry-leading technology, and innovation. Eastern Point Trust provides services across the U.S. and internationally.
About The Plaintiff Recovery Trust
The Plaintiff Recovery Trust is the proven solution to increase the amount plaintiffs keep in taxable cases. Without it, plaintiffs are taxed on the settlement proceeds paid to their lawyers. https://www.easternpointtrust.com/plaintiff-recovery-trust
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Qualified Settlement Funds (QSFs) are powerful financial tools to administer settlements, especially in complex matters. Parties involved in disputes contemplated under 1.46B-1 et seq. can effectively manage and benefit from Qualified Settlement Funds’ tax and financial advantages.
Qualified Settlement Funds (QSFs), a 468B trust, are valuable and crucial in managing litigation settlements efficiently and effectively. "QSF", which stands for "Qualified Settlement Fund", is a fund established as a trust or account established to hold settlement proceeds from litigation. According to the definition under Treasury Regulations, it is an escrow account, trust, or fund established according to an order of or approved by a government authority to resolve or satisfy claims.
This comprehensive infographic guide explains the essential aspects of Qualified Settlement Funds:
The guide provides valuable insights, tips, and rules of thumb for legal professionals, claimants, and other stakeholders about how a QSF account benefits the settlement process. A QSF offers many advantages, including immediate tax deduction for defendants, tax deferral for claimants, and efficient management of settlement proceeds. QSFs are commonly used in class action lawsuits, mass tort litigation, and cases with multiple claimants, but can also provide benefits in single claimant cases.
Setting up a QSF involves petitioning a government authority and appointing a QSF Administrator to oversee the fund. The QSF Administrator, often a platform like QSF 360, is responsible for obtaining an EIN, handling tax reporting, overseeing QSF administration, and making distributions to claimants. Online QSF portals streamline the Qualified Settlement Fund administration process.
Partnering with an experienced QSF Administrator is essential. Services like QSF 360 from specialize in QSFs for both large and small cases and can help ensure compliance with IRC § 1.468B-1 and other regulations.
In summary, Qualified Settlement Funds are a powerful tool for managing settlement proceeds. With proper planning and administration, QSFs provide significant tax benefits, enable efficient distribution of litigation proceeds, and help bring litigation closure. Understanding what is QSF and how to leverage QSFs is invaluable for any legal professional involved in today's settlements.
Eastern Point Trust Company se complace en ofrecer a los clientes de habla hispana un número gratuito exclusivo, así como acceso a un equipo de servicios al cliente compuesto por personal hispanohablante nativo profesional y de alto nivel.
Para obtener más información, comuníquese con el equipo al (855) 412-5100, esperamos trabajar con usted.
BP OIL SPILL/
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INDONESIA JETCRASH FLIGHT 152
AIR PHILIPPINES FLIGHT 531
VW GROUP OF AMERICA INC SETTLEMENT (DIESEL CASE)
3M
AMAZON
GENERAL MOTORS
MATCH
INTUIT MULTI-STATE SETTLEMENT
BERNARD MADOFF
PURDUE PHARMA
POLARIS INDUSTRIES
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