Litigation

I happened upon a slick presentation about structured settlements by one of my industry brethren that includes the following:

The title "Annuity: Always Tax Free

A statement that the Governing US code and Tax Law is The Internal Revenue Code of 1954 which the individual represents is a "mandate that settlement proceeds from personal physical injury claim are always tax free"

Comments

1. An annuity is not always tax free.
2. A structured settlement annuity is not always tax free
3. There is nowhere in the Internal Revenue Code that says that structured settlement annuties are tax free.
4. IRC 104(a)(2) provides for an exclusion from taxable income, of "the amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness".
5. The word "physical" does not appear in IRC 104(a)(2). The author of the critiqued presentation has muddled things with its inclusion in IRC 130. IRC 130 came into being with the Periodic Payment Settlement Act of 1982.
6. The governing law is the Internal Revenue Code of 1986, as amended, not the Internal Revenue Code of 1954.
7. One must distinguish between taxes on income and taxes upon an estate in the event of death
8. Since 1918, the tax exclusion includes the terms "whether by suit or agreement".

References

• Revenue Act of 1918  Section 213(b)(6) The exclusion for personal injury damages appears in the Internal Revenue Code-see p22

Internal Revenue Code of 1954

"Section 104(a)(2) excludes from gross income the amount of any damages received (whether by suit or agreement) on account of personal injuries or sickness. The term damages received (whether by suit or agreement) means an amount received (other than workmen's compensation) through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered into in lieu of such prosecution".