The IRS rulings stated that if certain requirements were met, claimants would owe no federal income tax on the amounts received.
There are 47 states with structured settlement protection acts, created by a model promulgated by the National Conference of Insurance Legislators ("NCOIL").
A Structured Medicare Set Aside Arrangement (MSA) generally costs less than a non-structured MSA because of amortization of the future cash flow over the claimant's life expectancy, as opposed to funding all the payments otherwise due in the future in a single non-discounted sum today.
[11] Pursuant to IRC 130(d) a "qualified funding asset" may be an annuity or an obligation of the United States government.
Accordingly, the defendant or property/casualty insurer transfers the obligation, through a legal device called a qualified assignment, to a third party.
This method of substituting the obligor is desirable for defendants or property/casualty companies that do not want to retain the periodic payment obligation on their books.
A qualified assignment is also advantageous for the claimant as it will not have to rely on the continued credit of the defendant or property/casualty company as a general creditor.
One of the reasons an unassigned case is less popular is that the obligation is not truly off the books, and the defendant or casualty insurer retains a contingent liability.
While a default is a rare occurrence, contingent liability did come into play with the liquidation of Executive Life Insurance Company of New York.
[12] Some annuitants suffered shortfalls, and a number of obligors at the wrong end of unassigned cases made up the difference.
In 1982, Congress adopted special tax rules to encourage the use of structured settlements to provide long-term financial security to seriously injured victims and their families.
In the Taxpayer Relief Act of 1997, Congress extended the structured settlements to worker's compensation to cover physical injuries suffered in the workplace.
What makes this work is the tax exclusion to the qualified assignment company afforded by IRC section 130.
[19] leading to rapidly passed reform of the Maryland Structured Settlement Protection Act[20] and lawsuits brought against the Chevy Chase MD company that originated the deals and a number of its executives by the Maryland Attorney General,[21] The Consumer Financial Protection Bureau[22] and a plaintiff's class action.
On September 14, 2017 a class action lawsuit filed in the Eastern District of Pennsylvania,[23] alleging Portsmouth Virginia Circuit Court judges were complicit in an "Annuity Fraud Enterprise" scheme, in which a Virginia lawyer and 79th District delegate Steve Heretick was the central figure, representing JG Wentworth, Seneca One, 321 Henderson Receivables and other settlement purchasers, that allegedly violated the rights of thousands of structured settlement annuitants.