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.
Discover the IRS definition of "engaged in trade or business within the United States" and its implications for individuals and businesses. Learn about exceptions, personal services, partnerships, and more. Understand your tax obligations effectively.
The Internal Revenue Service (IRS) plays a crucial role in determining tax obligations and regulations within the United States. For individuals and businesses operating in the country, it is essential to understand how the IRS defines "doing business" in the United States. This article aims to provide a comprehensive explanation of the IRS definition and its implications.
According to the IRS, the term "engaged in trade or business within the United States" is outlined in Part I (Section 861 and following) and Part II (Section 871 and following) of the Internal Revenue Code (IRC). The IRS considers certain activities as falling within this definition, unless otherwise specified [1].
The IRS provides exceptions to the definition of "engaged in trade or business within the United States." These exceptions exclude specific activities described in paragraphs (c) and (d) of the IRS regulations [1]. However, it is important to note that the performance of personal services within the United States at any time within the taxable year is generally considered as being engaged in trade or business within the country [1].
The IRS has specific rules regarding the performance of personal services for foreign employers. For a nonresident alien individual, foreign partnership, or foreign corporation that is not engaged in trade or business within the United States during the taxable year, the performance of personal services in the United States does not constitute being engaged in trade or business within the country [1].
Similarly, an individual who is a citizen or resident of the United States or a domestic partnership or corporation maintaining an office or place of business in a foreign country or U.S. possession can perform personal services in the United States for a total of 90 days or less during the taxable year. As long as their compensation for such services does not exceed a gross amount of $3,000, they are not considered engaged in trade or business within the United States [1].
To determine whether an individual or entity is engaged in a trade or business within the United States, the nature of their activities plays a significant role. The IRS considers the regularity of activities, transactions, production of income, and ongoing efforts to further the interests of the business [2].
Nonimmigrants temporarily present in the United States on "F," "J," "M," or "Q" visas are considered engaged in a trade or business within the country. The taxable part of any U.S. source scholarship or fellowship grant received by nonimmigrants in these visa categories is treated as effectively connected with a trade or business in the United States [3].
Members of partnerships engaged in trade or business within the United States at any time during the tax year are considered engaged in trade or business within the country [3].
When a foreign person engages in a trade or business in the United States, the income from sources within the United States connected with that trade or business is considered Effectively Connected Income (ECI). This applies regardless of any connection between the income and the trade or business conducted in the United States during the tax year [3].
Understanding the IRS definition of doing business in the United States is essential for individuals and businesses to comply with tax regulations. The IRS considers various factors such as the nature of activities, exceptions for specific situations, and the concept of effectively connected income (ECI). By familiarizing themselves with these guidelines, taxpayers can navigate their tax obligations effectively and ensure compliance with the IRS regulations.
A comprehensive guide to KYC and AML requirements for banks, investment firms, insurance companies, money services businesses, and other financial entities. Learn about customer identification, due diligence, beneficial ownership, and ongoing monitoring.
Regulatory bodies, such as financial supervisory authorities, set guidelines and enforce compliance with these requirements to maintain the integrity of the financial system. Accordingly, financial institutions are required by federal and international law to conduct "know your client" (KYC) and “anti-money laundering” (AML) monitoring. Such financial institutions include banks, investment firms, insurance companies, money services businesses, private and commercial lenders and other entities involved in financial transactions.
KYC and AML regulations aim to prevent money laundering, terrorist financing, and other illicit activities by ensuring that financial institutions have a comprehensive understanding of their clients' identities, ownership, transfer payments, business activities, and sources and uses of funds.
The following provides general classification types of financial institutions that must conduct ongoing KYC and AML monitoring, which includes random and trigger-based information requirements for additional information:
Banks: This includes retail banks, commercial banks, and investment banks. Banks have a significant role in the financial system and handle various types of transactions, making them vulnerable to money laundering and terrorist financing risks.
Investment Firms: Securities brokers, asset management companies, and other investment firms are subject to KYC and AML requirements. These firms handle transactions related to securities trading, investment advisory services, and fund management, which can be susceptible to illicit activities.
Insurance Companies: Insurance providers, including life insurance and general insurance companies, are also obligated to conduct KYC and AML monitoring. Insurance policies can be misused for money laundering purposes, and insurance companies need to verify the identities of policyholders and assess the legitimacy of transactions.
Money Services Businesses (MSBs): MSBs encompass a range of entities such as money transfer services, currency exchange providers, prepaid card issuers, and check cashing businesses. Due to the nature of their services, MSBs are susceptible to being exploited for money laundering or terrorist financing, necessitating robust KYC and AML procedures.
Virtual Asset Service Providers (VASPs): With the rise of digital assets, VASPs, including platforms for asset exchanges and storage services, are increasingly subject to KYC and AML regulations. These entities facilitate the exchange, storage, and transfer of virtual assets, which can be attractive for illicit purposes.
In the global financial landscape, combating money laundering, tax fraud and terrorist financing has become a top priority for regulatory bodies and financial institutions alike. To ensure the integrity of the financial system and prevent illicit activities, various types of financial institutions are required to implement robust KYC and AML measures. This article will provide a detailed list of the types of financial institutions that must conduct KYC and AML data collection and monitoring.
Commercial and Private Money Lenders, and Loan Companies: Lenders, including but not limited to litigation finance companies, are obligated to conduct KYC and AML monitoring. Lending arrangements are often used as part of tax fraud and can be misused for money laundering purposes, and lenders need to verify the identities of loan recipients and assess the legitimacy of transactions.
Trust Companies and Trust Administrators: Trusts are often used to hide the true beneficial ownership and control of accounts. As these firms handle transactions which can be susceptible to illicit activities, trust companies and trust administrators are subject to KYC and AML requirements.
The following provides a more detailed list of examples of the types of firms that are required to comply with KYC and AML requirements:
Banks
Insurance Companies
Brokerage and Custodian Firms
Money Services Businesses (MSBs)
Commercial and Private Money Lenders, and Loan Companies
Securities Dealers
Mutual Funds
Trust and Fiduciary Service Providers
ForEx, Cross Border Accounts, and Anonymous Account Providers
Wealth Management Firms
Payment Service Providers
Financial institutions, are required to comply with KYC and AML regulations to mitigate the risk of money laundering and terrorist financing. The specific requirements may vary by jurisdiction, but they generally include:
CIPs verify the identity of customers through reliable and independent documents, data, or information, and involve the collection of information such as name, address, date of birth, and identification numbers.
CDD is utilized to assess the risk profile of customers based on factors such as their nature of business, location, and transaction history.
In certain cases, CDD may also involve conducting enhanced due diligence for high-risk customers, including politically exposed persons (PEPs) and those involved in high-value transactions.
Beneficial Ownership Identification involves identifying and verifying the beneficial owners of legal entity customers and gathering information on individuals who own or control the customer and assessing their risk profile.
Financial institutions are required to perform continuous monitoring of customer transactions and activities to detect any suspicious or unusual behavior. The following are the key factors that may prompt a US financial institution to request additional KYC information:
Regulatory Compliance: Financial institutions must comply with regulatory frameworks such as the Bank Secrecy Act (BSA) and the USA PATRIOT Act. These regulations require institutions to establish and maintain effective KYC programs to verify the identity of their customers and assess their risk profile. Additional KYC information may be requested to meet regulatory obligations and ensure compliance [1].
Risk-Based Approach: Financial institutions are expected to adopt a risk-based approach to KYC. This means that they must assess the risk associated with each customer and adjust their due diligence measures accordingly. If a customer is considered high risk based on factors such as their country of origin, business activities, or transaction patterns, the institution may request additional KYC information to gain a better understanding of the customer's profile and detect any potential red flags [1].
Changes in Customer Profile: Financial institutions need to keep customer information up to date. Financial Institutions should develop policies to review and confirm the customer information is current. Also, if the financial institution becomes aware, or has reason to believe, of potential changes in a customer's profile, such as changes in ownership, business activities, or transaction patterns, the institution may request additional KYC information to ensure the accuracy and completeness of customer records [3].
Transaction Monitoring: Financial institutions have an obligation to monitor customer transactions for material changes in transactional activity or suspicious activities and to report any suspicious transactions to the appropriate authorities. If a customer's transactions trigger alerts or raise suspicions, the institution may request additional KYC information to further investigate the nature and purpose of the transactions [1].
Compliance with FATCA: The Foreign Account Tax Compliance Act (FATCA) is a US law that requires foreign financial institutions to report information about financial accounts held by US taxpayers or entities with substantial US ownership interests. Financial institutions subject to FATCA may request additional KYC information to comply with these reporting obligations [2].
It's important to note that the specific triggers for requesting additional KYC information may vary based on the institution's internal policies, risk assessment processes, and regulatory requirements. Financial institutions must exercise discretion and judgment in determining when additional KYC information is necessary to ensure compliance and mitigate risk.
The importance of KYC and AML measures cannot be overstated in today's financial landscape. Various types of financial institutions, including lending companies, are required to verify a client’s identity (including but not limited to all Underlying Beneficial Owners and Control Person) as a crucial part of preventing money laundering and terrorist financing. By implementing robust KYC procedures, collecting relevant customer data, and conducting thorough AML monitoring, these institutions fulfill their mandated duty to contribute to the global efforts in maintaining the integrity and security of the financial system.
It's important to note that the lists provided in this article are not exhaustive. Financial institutions should always stay up to date with the latest regulations and guidance issued by the relevant authorities to ensure compliance.
Learn about tax penalties, civil claims, and state bar actions upon disqualifying a Firmwide Qualified Settlement Fund (FWQSF). Understand potential consequences and legal implications.
In part 1 of this series, we explored the question of what is a Firmwide Qualified Settlement Fund (FWQSF) - sometimes also referred to as a Master Qualified Settlement Fund. We concluded that such arrangements are not supported by the regulations, the IRS comments, or the IRS’ rulings in Private Letter Rulings. As noted in part one, this analysis of FWQSF schemes is not singular. Multiple tax law firms and industry commentators have long chronicled the array of issues with FWQSFs.1
Now, in part 2 of this series, we turn our focus to what could be the potential consequences upon disqualification of an FWQSF as a Qualified Settlement Fund (“QSF”).
If the IRS disqualifies an FWQSF for failing to meet the related claims requirement under section 1.468B-1(c)(2), or for any other reason, there would likely be various tax consequences and potential penalties. These may include:
Loss of Tax Deduction: If an FWQSF is disqualified, the transferring parties (typically defendants) may lose their tax deductions for contributions made to the fund. Generally, a defendant can claim a tax deduction for amounts transferred to a QSF in the year the transfer occurs. However, the IRS may disallow the defendant’s deduction if the fund is disqualified as a QSF.
Constructive Receipt: If an FWQSF is disqualified, the transferring parties may be considered to have made direct payments to the claimants, leading to potential constructive receipt issues for the claimants. The constructive receipt would result in immediate tax liability for the claimants, even if they have not yet received the funds. In such a scenario, disqualification for treatment under Section 130 could arise or disqualify the attorney fee structure or assignment.
Accelerated Tax Liability: Upon disqualification of an FWQSF, claimants may face immediate tax liability on the amounts allocated, as they could be in constructive receipt of the funds. They may have to pay taxes before receiving the funds or in a tax year when unprepared for the tax liability. The accelerated tax liability may create an unfavorable financial and tax situation for the claimants.'
Trust Taxation: If an FWQSF is disqualified, it may be treated as a regular trust for tax purposes, subject to additional and adverse tax treatment.
Penalties: If the IRS determines that an FWQSF or the parties involved have not complied with the tax laws, it may impose penalties, such as failure to file, late payment, or failure to pay fines and penalties, depending on the specific situation.
Interest: The IRS may also assess interest on any unpaid taxes or underpayments resulting from the disqualification of an FWQSF, which could further increase the financial burden on the parties involved.
In cases where the IRS suspects intentional wrongdoing or fraud in the establishment or administration of an FWQSF, it may pursue tax fraud claims against the parties involved. This could lead to significant financial penalties and potential criminal liability, depending on the severity of the fraud.
In conclusion to Section One, the disqualification of an FWQSF by the IRS can lead to various tax consequences, penalties, interest, and potential tax fraud claims. The parties involved in establishing and administrating an FWQSF should ensure compliance with the related claims requirement and other tax laws to avoid these unfavorable outcomes.
If the IRS disqualifies an FWQSF, the law firm responsible for its establishment and administration may face civil claims and litigation. These claims may include:
Suppose the law firm fails to properly advise clients about the related claims requirement, tax consequences, or the risks of establishing an FWQSF. In that case, clients may pursue legal malpractice claims against the firm. Clients would need to prove that the law firm breached its duty of care, which caused them harm through financial losses, tax liabilities, or other damages.
Attorneys owe a fiduciary duty to their clients, which includes duties of loyalty, competence, and diligence. Suppose the law firm failed to advise clients properly, failed to comply with the related claims requirement, or otherwise acted negligently in establishing or administering the FWQSF. In that case, clients may assert breach of fiduciary duty claims against the firm.
If the law firm fails to fulfill its contractual obligations to its clients in relation to an FWQSF, clients may pursue breach of contract claims against the firm. For example, suppose the firm agreed to establish and administer an FWQSF in compliance with all applicable tax laws and regulations but failed to do so. In that case, clients may have a claim for breach of contract.
Suppose the law firm provided false or misleading information to clients regarding an FWQSF, tax consequences, or the risks related to potential failing to satisfy the related claims requirement. In that case, clients may bring a claim for negligent misrepresentation. To succeed, clients would need to prove that the firm made false or misleading statements that the clients reasonably relied upon, resulting in damages.
Suppose the law firm’s actions or omissions related to an FWQSF cause other parties, such as defendants or claimants, to incur losses. In that case, these parties may bring claims for contribution or indemnification against the firm. Depending on the circumstances, they may seek to recover a portion or all of their losses from the law firm.
In some cases, a group of similarly situated claimants or defendants affected by the disqualification of an FWQSF may file a class action lawsuit against the law firm. The class action could involve claims such as legal malpractice, breach of fiduciary duty, breach of contract, or negligent misrepresentation.
In conclusion, the disqualification of an FWQSF may expose the responsible law firm to various civil claims and litigation, including legal malpractice, breach of fiduciary duty, breach of contract, negligent misrepresentation, contribution, indemnification, and class actions. Law firms should diligently advise clients about FWQSFs, ensure compliance with the related claims requirement, and manage the associated risks to avoid potential civil claims and litigation.
Suppose the IRS disqualifies an FWQSF; the law firm responsible for its establishment and administration will likely have acted negligently or unethically. In that case, the state bar may take disciplinary action against the firm or the attorneys involved. The specific steps that the state bar might take may depend on the jurisdiction and the nature of the misconduct but could include the following:
The state bar may investigate the law firm or the attorneys involved in an FWQSF’s establishment and administration. A complaint from a client, another attorney, or the state bar itself could trigger this investigation.
Suppose the state bar concludes that the law firm or its attorneys acted negligently or unethically but that their misconduct was not severe enough to warrant suspension or disbarment. In that case, the state bar may issue a reprimand or censure. This formal rebuke serves as a warning and becomes part of the attorney’s disciplinary record.
The state bar may impose a probationary period on the attorneys involved in an FWQSF’s disqualification. During probation, the attorneys may be required to meet certain conditions, such as attending continuing legal education courses, submitting to periodic audits, or reporting regularly to the state bar.
In the event the state bar determines that the misconduct was more severe, it may suspend the attorneys involved for a specified period. During the suspension, the attorneys cannot practice law, and their licenses are temporarily inactive.
In the most severe cases, where the state bar finds that the attorneys engaged in serious misconduct, such as fraud, intentional misrepresentation, or willfully ignoring the law, the attorneys may be disbarred. Disbarment is the most severe disciplinary action resulting in permanent revocation of the attorney’s license to practice law.
The state bar may also order the law firm or its attorneys to pay restitution to clients or other parties who suffered financial harm due to an FWQSF’s disqualification. Restitution may involve reimbursing clients for fees paid, compensating for tax liabilities, or other economic losses.
The state bar may require the attorneys involved in an FWQSF’s disqualification to complete additional continuing legal education courses, particularly in areas such as ethics, tax law, or Qualified Settlement Funds.
In conclusion, the state bar may take various disciplinary actions against a law firm or its attorneys if an FWQSF is disqualified due to negligence or unethical conduct. These actions may include reprimands, probation, suspension, disbarment, restitution, or mandatory continuing legal education, depending on the severity of the misconduct and the jurisdiction’s attorney discipline rules.
An analysis of the use of FWQSFs and the implications of PLR 201833012 and PLR 9549026, along with other IRS comments, in meeting the related claims requirement under section 1.468B-1(c)(2). This analysis sheds light on the potential challenges and limitations of FWQSFs.
As part 1 of a 2-part series (see part 2), we asked one of the leading AI-empowered legal research tools to analyze the use of Firmwide Qualified Settlement Funds, also known as Master Qualified Settlement Funds. Here is the interesting analysis and the conclusion that a lot can go wrong.
Firmwide Qualified Settlement Funds (FWQSFs), also known as Master Qualified Settlement Funds (MQSFs), are only offered by a small cadre of tax promoters. This analysis will evaluate whether FWQSFs are allowed under the related claims requirement stipulated in section 1.468B-1(c)(2) of the Treasury Regulations. Specifically, it will consider the relevance of Private Letter Rulings (PLRs) 201833012 and 9549026 and other pertinent Internal Revenue Service (IRS) comments or actions addressing this issue.
A Qualified Settlement Fund (QSF) is a statutory arrangement organized as a statutory trust or escrow fund established by a governmental authority to resolve or satisfy tort, environmental, breach of contract, or other claims. It allows parties to transfer funds to resolve their liabilities. At the same time, the QSF administrator handles the claims and distributes the funds to claimants. Section 1.468B-1(c)(2) states that a QSF must be:
“established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or a related series of events) that has occurred and that has given rise to at least one claim asserting liability.”
The related claims requirement mandates that a QSF must resolve or satisfy claims arising from a single event or a related series of events. This requirement ensures that a QSF is specific and targeted in its purpose, rather than being a general fund for resolving unrelated claims.
PLR 201833012 addresses whether a proposed MQSF satisfied the related claims requirement under section 1.468B-1(c)(2). The MQSF in question was designed to resolve claims against a single defendant that arose from a related series of events. The IRS concluded that the proposed MQSF did satisfy the related claims requirement because the claims against the defendant were connected by a common factual basis, thus they were related.
Although the ruling in PLR 201833012 appears to support the use of an MQSF to resolve claims against a single defendant, it does not directly address the broader concept of FWQSFs as offered by certain tax scheme promoters to comingle unrelated claims. As such, FWQSFs, which encompass claims against multiple defendants and a wider range of events, do not satisfy the related claims requirement under section 1.468B-1(c)(2).
While the IRS has not directly addressed the issue of FWQSFs in relation to the related claims requirement, the agency’s commentary on QSFs more generally provides some guidance. In the preamble to the final regulations under section 1.468B-1, the IRS expressed concern about using QSFs to resolve unrelated claims. The agency noted that it would monitor the use of QSFs to ensure compliance with the related claims requirement and may issue further guidance if necessary. Accordingly, ignoring the intent of the regulations would fly in the face of ultimate authorities on the subject.
This commentary suggests that the IRS is well aware of the potential for QSFs, including FWQSFs, to be used inappropriately to resolve unrelated claims. Consequently, FWQSFs seeking to satisfy the related claims requirement should be prepared to demonstrate that a common underlying causation and factual basis connects their claims.
PLR 9549026 provides additional authority on how the IRS interprets the related claims requirement. In this ruling, the IRS considered a QSF established to resolve claims arising from multiple accidents involving different plaintiffs and defendants at different locations. The IRS concluded that the QSF did not satisfy the related claims requirement because the claims were not connected by a common legal and factual basis.
Although PLR 9549026 does not explicitly address FWQSFs, the ruling provides conclusive guidance for the permissibility of unrelated claims under section 1.468B-1(c)(2). PLR 9549026 has been widely analyzed by professional commentators and is the subject of definitive legal analyses:
In IRS Private Letter Ruling 9549026, cited by Lane Powell, the IRS concluded that a trust that does not meet the “event (or related series of events)” requirement does not constitute a QSF [original emphasis]. The scenario that gave rise to PLR 9549026, the IRS determined that a trust established to resolve claims against a bankrupt company did not meet the definition of QSF because the claims were unrelated; they included tort-based workers compensation, personal injury, and property damage claims, as well as trade-creditor claims. Though they were all claims against the same bankrupt company, they did not arise from the same event or related series of events.
Lane Powell observes that PLR 9549026 indicates that the IRS does not accept a broad interpretation of the phrase “related series of events”. Rather, they say, it appears that the IRS requires commonality between parties and the claims, and not just the same defendant [or law firm (added)]. Thus, they say, it seems unlikely that the IRS would conclude that a single Master Pooled QSF holding funds from unrelated matters would constitute a QSF merely because the applicable parties work with the same law firm, professionals, or advisers [original emphasis]. As an example, they use a law firm aggregating settlement proceeds from multiple automobile accidents with claims from different accidents, on different dates and involving different parties.1
A plain reading of the law consistent with traditional canons of statutory construction further clarifies that IRC §1.468B-1(c)(2) requires, parenthetically, that if the claims arise from a series of events, they must be related. Nothing linguistically would suggest the parenthetical inclusion conveys optionality limiting the application of the provision. The proposition of arguing that a provision of the regulation does not apply because it is parenthetical is not a position that would render any confidence in a positive outcome. Likewise, promoters who suggest such treatment of this parenthetical phrase notably do not argue that the IRS’s wide and frequent use of parenthetical inclusions in 1.468B-1 et seq. have any other effect than to provide clarity and the intent of the IRS and, as such the provision applies with effect.
Based on the analysis of PLR 201833012, PLR 9549026, and other IRS comments, it cannot be reasonably argued that FWQSFs mixing in unrelated claims (claims from different accidents, on different dates and involving different parties) are allowable under the related claims requirement of section 1.468B-1(c)(2). The related claims requirement mandates that a QSF must resolve or satisfy claims arising from a single event or a related series of events, which would be difficult, if not impossible based on the facts of comingling unrelated cases, to establish in the context of an FWQSF. Moreover, the IRS has expressed concern about the potential misuse of QSFs to resolve unrelated claims, which could further complicate the permissibility of FWQSFs under the related claims requirement.
In conclusion, while the IRS has not issued specific guidance regarding FWQSFs, it is reasonable to argue that a FWQSF will not satisfy the related claims requirement under section 1.468B-1(c)(2) due to the potential impossibility in establishing a common factual basis among the claims being resolved. Therefore, the use of FWQSFs to address legal disputes is unlikely to withstand IRS scrutiny, and parties seeking to utilize such funds should be prepared to demonstrate the necessary connections among the claims involved.
We will address in part 2 of this series the possible negative outcomes associated with the IRS disqualifying a FWQSF.
A Qualified Settlement Fund (QSF) is a statutory trust/escrow account established to hold and distribute settlement funds to the parties involved in a legal dispute without needing court approval. Learn about the requirements, IRS's role, and advantages of using a QSF.
A Qualified Settlement Fund (QSF) is an important tool to settle legal disputes, particularly involving large sums of money. A QSF is a statutory trust/escrow account established to hold and distribute settlement funds to the parties involved in a legal dispute. The purpose of a QSF is to provide a centralized mechanism for the settlement of claims in a fair, efficient, and transparent way.
No, a court does not need to approve a QSF. IRC §468B-1(c)(1) provides that a non-court governmental authority has the power to approve a QSF.
(c) Requirements. A fund, account, or trust satisfies the requirements of this paragraph (c) if -
(1) It is established pursuant to an order of, or is approved by, the United States, any state (including the District of Columbia), territory, possession, or political subdivision thereof, or any agency or instrumentality (including a court of law) of any of the foregoing and is subject to the continuing jurisdiction of that governmental authority;
The approving governmental authority registers the QSF and oversees the administration of the QSF to ensure that it complies with the terms of the settlement agreement and applicable laws and regulations.
The Internal Revenue Service (IRS) also has a role in approving a QSF. For example, the IRS has established rules and procedures for the tax treatment of QSFs and requires certain information or documentation before granting the EIN associated with establishment of a QSF.
The question of whether a court must approve a QSF (or may a non-court governmental authority approve the QSF) is fully settled in the applicable regulations, as they provide that the “United States, any state (including the District of Columbia), territory, possession, or political subdivision thereof, or any agency or instrumentality (including a court of law) of any of the foregoing” may approve a QSF. The approving governmental authority will have a significant role in approving and overseeing the establishment and administration of the QSF.
As noted in a previous article about maximing settlement benefits, using a QSF can provide significant tax benefits to the parties involved in a legal dispute. Under U.S. tax law, if a taxable settlement is paid directly to a plaintiff, it is generally taxable as income. However, suppose the settlement is paid into a QSF. In that case, the funds are not taxable until distributed to the plaintiff. This singular feature provides significant tax planning opportunities for the parties involved in a legal dispute.
To establish a QSF in the United States, the parties involved in a legal dispute must petition the governmental authority to approve the establishment of the QSF. The governmental authority will review the proposed QSF agreement and determine whether it meets the qualification requirements. If the governmental authority approves the QSF, the settlement funds can then be deposited into the QSF and distributed to the parties involved.
It is important to note, however, that the role of the governmental authority in establishing and administrating a QSF can vary depending on the jurisdiction and the specific facts of the case. In some cases, the governmental authority may be more active in overseeing the QSF. In contrast, in other cases, the governmental authority may approve the establishment of the QSF and leave the fund’s administration to other parties.
In addition to governmental authority approval, a QSF is also subject to oversight by the IRS. The IRS’s involvement is because QSFs are often used to settle disputes involving taxable proceeds liabilities; the IRS is interested in ensuring that the funds in the QSF comply with the applicable tax laws.
The parties involved in a legal dispute must submit an EIN application to the agency to obtain an EIN from the IRS. The IRS’ EIN applicable systems define what an eligible QSF is:
What it is...
All settlement funds must file a Form 1120-SF (U.S. Income Tax Return for Settlement Funds). A settlement fund cannot elect to file a Form 1041 (U.S. Income Tax Return for Estates and Trusts). If you do not intend to file Form 1120-SF, your organization is not considered a settlement fund.
Note: As shown by the IRS’s website, no “Court Order” is required; suggestions to the contrary do not reconcile with the plain reading of the regulations or the IRS’s clearly stated criteria on their website.
It is important to note that establishing and administering a QSF trust can be complex and may vary depending on the jurisdiction of the approving governmental authority and the specific facts of the case. As such, it is advisable to consult with experienced legal and financial professionals to determine the particular requirements for establishing and administering a QSF in your jurisdiction. Experience tells us using a court to establish a QSF can take months and cost thousands of dollars in legal fees and court costs. However, solutions like QSF 360 provide quick, affordable, and straightforward solutions with experienced government agencies.
In addition to tax benefits, there are several other advantages to using a QSF in settling legal disputes. One of the main advantages is that a QSF can provide a centralized mechanism for the settlement of claims, which can help to reduce the administrative burden on the parties involved in the dispute. This feature can be vital in cases involving both single and multiple plaintiffs or defendants or in cases involving complex legal issues.
Another advantage of using a QSF is that it can help to provide a measure of security for the parties involved in the dispute. By depositing the settlement funds into a QSF, the parties can ensure that the funds will be available to pay any future claims or liabilities that may arise. This element can be essential in cases with a risk of future claims or liabilities, such as cases involving product liability or environmental claims (Learn more: QSF vs Environmental Remediation Trust).
While a QSF must be approved by a governmental authority, as defined by the regulations, a court does not need to be involved. Platforms like QSF 360 provide a quick and easy online method to create and administer a QSF without the costs and delays typically associated with court created QSFs.
Uncover the truth about QSFs and their benefits, including tax advantages, flexibility, and protection for all parties involved in a legal settlement. Learn how QSFs can be used in cases of any size and by all parties and how they offer cost-effective solutions for managing settlement funds.
A Qualified Settlement Fund (QSF) is a legal and financial vehicle for managing settlement funds in certain legal cases. QSFs are created under §1.468B-1 et seq. of the Internal Revenue Code and allow parties to a legal settlement to defer receipt of settlement funds. At the same time, settlement funds are allocated and distributed to the intended recipients. QSFs can provide several benefits, including tax advantages, flexibility, and protection for all parties involved in a settlement.
Despite the potential benefits of QSFs, several common misconceptions may prevent parties from considering this option. This article will explore these misconceptions and provide a more accurate understanding of QSFs and how to use them.
One of the most common misconceptions about QSFs is that they are only suitable for large settlements. In reality, there is no minimum or maximum settlement amount or number of plaintiffs required to use a QSF. While it’s true that QSFs are often utilized in cases involving significant sums of money, they can be helpful in any case where a settlement or judgment requires allocation and distribution to plaintiffs.
QSFs can be particularly useful in cases where the settlement amount is uncertain or where there are multiple plaintiffs with varying claims. With a QSF, parties can defer receipt of the settlement funds until the distribution plan is finalized and agreed upon. This feature can help ensure that each party receives an appropriate settlement share based on their circumstances and claims.
Another common misconception about QSFs is that plaintiffs only use them in a legal dispute. While it’s true that QSFs typically hold settlement funds for plaintiffs, they are also used by defendants or other parties involved in a legal dispute.
For example, a defendant may use a QSF to hold settlement funds while negotiating with multiple plaintiffs. This can help simplify the settlement process and ensure each plaintiff receives an appropriate share of the settlement funds. QSFs can also be used when multiple defendants or other parties are involved, such as in a class action lawsuit.
Another common misconception about QSFs is that they are expensive to set up and administer. While some costs may be associated with setting up and managing a QSF, typically, the benefits of using a QSF outweigh the costs. Solutions like QSF 360 offer turnkey QSF solutions starting at $500.
For example, QSFs can provide tax benefits that significantly reduce the overall tax liability for all parties involved in the settlement. QSFs can also help streamline the settlement process, potentially saving time and money in the long run. Additionally, many QSFs are set up with the assistance of experienced providers, which can help ensure that the process runs smoothly and that all parties’ legal interests are protected.
Another common misconception about QSFs is that they are complicated to understand. While QSFs can involve some complex legal and financial issues, experienced professionals can help guide the parties through the process.
By working with experienced professionals, parties can ensure that they fully understand the benefits and risks of using a QSF and make informed decisions about managing settlement funds.
In conclusion, QSFs are valuable for managing settlement funds in various legal cases – from single-plaintiff cases to larger and more complex cases. Unlike in the past, affordable, quick, and straightforward solutions (QSF 360) provide access to QSFs for even small single-claimant cases.
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.
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Eastern Point Trust Company offers a variety of escrow services, ministerial services, trust administration services, self-help support software, attorney support software, and document management systems; some of which offer companion self-service and automated software solutions. Fiduciary, escrow, ministerial, and trustee services are only offered and performed by Eastern Point Trust Company in such jurisdictions in which Eastern Point Trust Company is licensed to provide such services and then pursuant solely to the terms of the associated governing documents. Eastern Point Trust Company may act in a ministerial non-fiduciary capacity as escrow agent when applicable. As required by federal law related to "domestic trusts," fiduciary, escrow, and ministerial services related to "substantial decisions" shall be required to be independently performed by one or more co-trustees or affiliated or non-affiliated parties who are "United States persons." Fees charged are solely for ministerial services, trustee services, or licensing fees to access the self-help system, and fees are not drafting or document preparation fees. The content herein is provided as-is, and is limited to information and descriptions of the features and benefits of Eastern Point Trust Company's services, products, and requirements when applicable. This website is for informational purposes only and is not an offer to sell, an offer to buy, or a solicitation for any security. The content herein is not an offer to provide legal, fiduciary, escrow, ministerial, or trust services. The information herein is not intended to be legal or investment advice and should not be construed as legal or investment advice. Eastern Point Trust Company and its affiliated parties are not law firms, are not a lawyer referral service, and do not act as your attorney or investment advisor. Eastern Point Trust Company is not a substitute for the advice of an attorney or an investment advisor. As such, Eastern Point Trust Company does not provide any advice, explanation, opinion, or recommendation about possible legal rights, express any legal guidance on the matters contained herein, nor provide investment advice or management. As appropriate, seek the advice of an attorney if you have questions concerning legal questions, remedies, defenses, or options; seek the advice of a licensed investment advisor related to trust holding(s) or investments. Eastern Point Trust Company and its affiliated companies are not broker-dealers and only forward your instructions to executing custodians/broker-dealers. Your accessing and utilizing this website constitutes your agreement to the Terms and Conditions (a.k.a. Terms of Use) shown herein. Please review the Terms and Conditions (a.k.a. Terms of Use) carefully, as they contain important information and disclosures and are legally binding. The terms of the applicable agreement, and the Terms and Conditions (a.k.a. Terms of Use) on the website shall supersede and have precedent over any information provided for herein. You are solely responsible for protecting the privacy and security of your electronic communications (sent or received). Additionally, it is your duty to secure your systems, networks, devices, browsers, and communications systems and devices with anti-virus and malware protection and anti-breach security software. Any loss resulting from a breach of your systems, networks, devices, browsers, or communications systems and devices is solely your liability.
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