PRIA, Government Policy, Made Personal

Summary

Money someone gets for transferring the right to future personal-injury or physical-sickness payments is not taxed, but only up to the cost of the assets bought to fund those payments. If an annuity or U.S. government obligation is bought to pay those amounts, the buyer must reduce the asset’s tax basis by the tax-free amount, and any profit when the asset is later sold is taxed as ordinary income. The transfer must be of periodic payments for physical injury or sickness, with the new payer taking over the original payer’s liability. The payments must be fixed, the recipient can’t change timing or amount, and the payments must already be tax-exempt as injury or sickness damages. The funding asset must be an annuity from a state‑licensed insurer or a U.S. obligation, match the payment timing and amounts, be designated under rules, and be bought within 60 days before or after the transfer. For tax timing, ignore any special creditor-like rights given in the transfer.

Title 26, §130

Internal Revenue Code, Source: USLM XML via OLRC

(a)In general

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)Treatment of qualified funding asset

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)Qualified assignment

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).

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.

(d)Qualified funding asset

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

Citations & Metadata