Questions About IRC 5891 and the 40% Excise Tax

The following two questions were asked by John Darer of Structured Settlements 4 Real:

1. Can a structured settlement recipient choose to forgo getting Court approval? If so, what are the consequences?
2. How does the factoring company "factor in" the 40% excise penalty (set forth in IRC 5891) in the factoring quote to the structured settlement recipient?

The answer to this is quite simple. An annuitant cannot forgo the court approval process in a structured settlement factoring transaction. Here is why:

Is Money Received From A Structured Settlement Transfer Tax Free?

The lump sum you receive from the sale of your structured settlement payments will have the same tax treatment as your structured settlement annuity. In other words if your structured settlement payments were tax free then the lump sum you would receive from the sale would be tax free as well.

Most structured settlement annuities qualify for tax free treatment under section 130 of the Internal Revenue Code. The U.S Governement has taken several steps to protect tort victims and other parties from unfair taxes that resulted from personal injury settlements.

Planning For The Future Is The Key To Selling Annuity Payments

Thousands of annuitants sell the rights to their annuity payments every year, but what can each of these individuals due to secure their financial future? The simple answer is to plan ahead for both the certain and uncertain events that will happen.

Annuitants sell the rights to their payments for a multitude of reasons, most caused by a financial situation such as debt.