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

Summary

When a company takes over someone else's duty to make injury-settlement payments, called a qualified assignment, the money it receives for agreeing is not counted as income, up to what it spends on assets that fund the payments. A qualified assignment covers periodic payments as damages for physical injury or sickness, or as workers' compensation, where the payments are fixed in amount and timing, cannot be sped up, delayed, raised, or lowered by the recipient, and are tax-free to the person receiving them. The funding asset must be an annuity from a state-licensed insurance company or a U.S. government obligation, must reasonably match the payment schedule, and must be bought no more than 60 days before or after the assignment. The asset's basis is reduced by the excluded amount, and any gain when the asset is sold is taxed as ordinary income.

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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