§130 — Title 26 Internal Revenue Code | U.S. Code

Summary

If you get money for agreeing to take over someone’s duty to pay future personal-injury or sickness payments, that money is not taxed as income up to the total cost of the assets bought to fund those payments. If you buy a qualified funding asset to cover the payments, you must lower that asset’s tax basis by the excluded amount, and any profit when you sell the asset is taxed as ordinary income. Qualified assignment — an agreement or court order that transfers a duty to make regular damage or workers’ compensation payments for physical injury or sickness, where the buyer takes the liability from a party to the case, the payments are fixed and can’t be changed by the receiver, the buyer’s duty is no greater than the original payer’s, and the payments are tax-excludable under section 104(a)(1) or (2). Qualified funding asset — an annuity from a state-licensed insurer or a U.S. government obligation used to pay the assignment, with payment timing and amounts that match the assignment, formally designated as such under Treasury rules, and bought no more than 60 days before and no later than 60 days after the assignment.

Title 26, §130

Internal Revenue Code — Source: USLM XML via OLRC

(a)Any amount received for agreeing to a qualified assignment shall not be included in gross income to the extent that such amount does not exceed the aggregate cost of any qualified funding assets.

(b)In the case of any qualified funding asset—

(1)the basis of such asset shall be reduced by the amount excluded from gross income under subsection (a) by reason of the purchase of such asset, and

(2)any gain recognized on a disposition of such asset shall be treated as ordinary income.

(c)For purposes of this section, the term “qualified assignment” means any assignment of a liability to make periodic payments as damages (whether by suit or agreement), or as compensation under any workmen’s compensation act, on account of personal injury or sickness (in a case involving physical injury or physical sickness)—

(1)if the assignee assumes such liability from a person who is a party to the suit or agreement, or the workmen’s compensation claim, and

(2)if—

(A)such periodic payments are fixed and determinable as to amount and time of payment,

(B)such periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments,

(C)the assignee’s obligation on account of the personal injuries or sickness is no greater than the obligation of the person who assigned the liability, and

(D)such periodic payments are excludable from the gross income of the recipient under paragraph (1) or (2) of section 104(a).

(d)For purposes of this section, the term “qualified funding asset” means any annuity contract issued by a company licensed to do business as an insurance company under the laws of any State, or any obligation of the United States, if—

(1)such annuity contract or obligation is used by the assignee to fund periodic payments under any qualified assignment,

(2)the periods of the payments under the annuity contract or obligation are reasonably related to the periodic payments under the qualified assignment, and the amount of any such payment under the contract or obligation does not exceed the periodic payment to which it relates,

(3)such annuity contract or obligation is designated by the taxpayer (in such manner as the Secretary shall by regulations prescribe) as being taken into account under this section with respect to such qualified assignment, and

(4)such annuity contract or obligation is purchased by the taxpayer not more than 60 days before the date of the qualified assignment and not later than 60 days after the date of such assignment.

Notes & Related Subsidiaries

Editorial Notes

Prior Provisions

A prior section 130 was renumbered section 140 of this title.

Amendments

1997—Subsec. (c). Pub. L. 105–34, § 962(a)(1), inserted “, or as compensation under any workmen’s compensation act,” after “(whether by suit or agreement)” in introductory provisions. Subsec. (c)(1). Pub. L. 105–34, § 962(a)(2), inserted “or the workmen’s compensation claim,” after “agreement,”. Subsec. (c)(2)(D). Pub. L. 105–34, § 962(a)(3), substituted “paragraph (1) or (2) of section 104(a)” for “section 104(a)(2)”. 1988—Subsec. (c). Pub. L. 100–647, in par. (2), redesignated subpars. (D) and (E) as (C) and (D), respectively, struck out former subpar. (C) which provided that the assignee does not provide to the recipient of such payments rights against the assignee which are greater than those of a general creditor, and as concluding provisions, inserted at end “The determination for purposes of this chapter of when the recipient is treated as having received any payment with respect to which there has been a qualified assignment shall be made without regard to any provision of such assignment which grants the recipient rights as a creditor greater than those of a general creditor.” 1986—Subsec. (c). Pub. L. 99–514 inserted “(in a case involving physical injury or physical sickness)”.

Statutory Notes and Related Subsidiaries

Effective Date

of 1997 Amendment Pub. L. 105–34, title IX, § 962(b), Aug. 5, 1997, 111 Stat. 892, provided that: “The

Amendments

made by subsection (a) [amending this section] shall apply to claims under workmen’s compensation acts filed after the date of the enactment of this Act [Aug. 5, 1997].”

Effective Date

of 1988 Amendment Pub. L. 100–647, title VI, § 6079(b)(2), Nov. 10, 1988, 102 Stat. 3710, provided that: “The amendment made by paragraph (1) [amending this section] shall apply to assignments after the date of the enactment of this Act [Nov. 10, 1988].”

Effective Date

of 1986 Amendment Pub. L. 99–514, title X, § 1002(b), Oct. 22, 1986, 100 Stat. 2388, provided that: “The amendment made by this section [amending this section] shall apply to assignments entered into after December 31, 1986, in taxable years ending after such date.”

Effective Date

Pub. L. 97–473, title I, § 101(c), Jan. 14, 1983, 96 Stat. 2606, provided that: “The

Amendments

made by this section [enacting this section and amending section 104 of this title] shall apply to taxable years ending after December 31, 1982.”

§130 Certain personal injury liability assignments

Summary

Title 26, §130

Notes & Related Subsidiaries

Editorial Notes

Prior Provisions

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Amendments

Effective Date

Effective Date

Effective Date

Amendments

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