[Federal Register Volume 68, Number 33 (Wednesday, February 19, 2003)]
[Rules and Regulations]
[Pages 7922-7926]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3864]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 157 and 602

[TD 9042]
RIN 1545-BB24


Excise Tax Relating to Structured Settlement Factoring 
Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations relating to the 
manner and method of reporting and paying the nondeductible 40-percent 
excise tax imposed on any person who acquires structured settlement 
payment rights in a structured settlement factoring transaction. The 
Victims of Terrorism Tax Relief Act of 2001 added this excise tax to 
the Internal Revenue Code of 1986. The text of the temporary 
regulations also serves as the text of the proposed regulations set 
forth in the notice of proposed rulemaking on this subject in the 
proposed rules section in this issue of the Federal Register.

DATES: Effective Date: These regulations are effective February 19, 
2003.
    Applicability Date: For dates of applicability, see Sec.  157.5891-
1T(e).

FOR FURTHER INFORMATION CONTACT: Shareen S. Pflanz at 202-622-8488 (not 
a toll-free call).

SUPPLEMENTARY INFORMATION: 

[[Page 7923]]

Paperwork Reduction Act

    These regulations are being issued without prior notice and public 
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). 
For this reason, the collection of information contained in these 
regulations has been reviewed and, pending receipt and evaluation of 
public comments, approved by the Office of Management and Budget under 
control number 1545-1824. Responses to this collection of information 
are mandatory.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    For further information concerning this collection of information, 
and where to submit comments on the collection of information and the 
accuracy of the estimated burden, and suggestions for reducing this 
burden, please refer to the preamble to the cross-referencing notice of 
proposed rulemaking published in the Proposed Rules section of this 
issue of the Federal Register.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document adds a new part 157, Excise Tax on Structured 
Settlement Factoring Transactions, to title 26 of the Code of Federal 
Regulations. The temporary regulations under part 157 provide guidance 
on the proper manner and method of reporting and paying the 40-percent 
excise tax imposed on any person who acquires, directly or indirectly, 
structured settlement payment rights in a structured settlement 
factoring transaction. The temporary regulations reflect the addition 
to the Internal Revenue Code (Code) of chapter 55 and section 5891 by 
section 115 of the Victims of Terrorism Tax Relief Act of 2001, Public 
Law 107-134 (115 Stat. 2427, 2436-2439).

Explanation of Provisions

    Section 5891of the Internal Revenue Code imposes an excise tax on 
any person who acquires, directly or indirectly, structured settlement 
payment rights in a structured settlement factoring transaction. The 
tax is equal to 40 percent of the factoring discount with respect to 
the factoring transaction.
    The temporary regulations set forth the manner and method of paying 
the excise tax imposed under section 5891 of the Code. Generally, the 
term structured settlement factoring transaction is defined as a 
transfer of structured settlement payment rights made for consideration 
by means of sale, assignment, pledge, or other form of encumbrance or 
alienation for consideration. If a taxpayer is liable for the tax 
imposed by section 5891, the excise tax must be reported on Form 8876, 
Excise Tax on Structured Settlement Factoring Transactions. Generally, 
the temporary regulations require that the excise tax return be filed 
and the tax paid on or before the later of the ninetieth day following 
the day the taxpayer receives any structured settlement payment rights 
(including portions of structured settlement payments) or May 20, 2003. 
The temporary regulations provide rules relating to the Service's 
authority to extend the time for payment of any amount shown or 
required to be shown on the return.
    The temporary regulations do not address the method of determining 
the proper amount of the excise tax imposed by section 5891 of the 
Code. Issues related to the determination of the amount of the excise 
tax may be addressed by future regulations.
    The temporary regulations will be effective generally for 
structured settlement factoring transactions entered into on or after 
February 22, 2002.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. For the 
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), 
refer to the Special Analyses section of the preamble to the cross-
reference notice of proposed rulemaking published in the proposed rules 
section in this issue of the Federal Register. Pursuant to section 
7805(f) of the Internal Revenue Code, these temporary regulations will 
be submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact.

Drafting Information

    The principal author of these regulations is Shareen Soltanzadeh 
Pflanz, Attorney, Office of Associate Chief Counsel (Income Tax and 
Accounting). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects

26 CFR Part 157

    Excise taxes, Structured settlement factoring transactions, 
Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, title 26 of the Code of Federal Regulations is amended 
as follows:

SUBCHAPTER D--MISCELLANEOUS EXCISE TAXES

    1. Part 157 is added to read as follows:

PART 157--EXCISE TAX ON STRUCTURED SETTLEMENT FACTORING 
TRANSACTIONS

Subpart A--Tax on Structured Settlement Factoring Transactions
Sec.
157.5891-1T Imposition of excise tax on structured settlement 
factoring transactions.
Subpart B--Procedure and Administration
157.6001-1T Records, statements, and special returns.
157.6011-1T General requirement of return, statement, or list.
157.6061-1T Signing of returns and other documents.
157.6065-1T Verification of returns.
157.6071-1T Time for filing returns.
157.6081-1T Extension of time for filing the return.
157.6091-1T Place for filing returns.
157.6151-1T Time and place for paying of tax shown on returns.
157.6161-1T Extension of time for paying tax.
157.6165-1T Bonds where time to pay tax has been extended.

    Authority: 26 U.S.C. 7805.

Section 157.6001T also issued under 26 U.S.C. 6001.
Section 157.6011T also issued under 26 U.S.C. 6011.
Section 157.6061T also issued under 26 U.S.C. 6061.
Section 157.6071T also issued under 26 U.S.C. 6071.
Section 157.6091T also issued under 26 U.S.C. 6091.
Section 157.6161T also issued under 26 U.S.C. 6161.


[[Page 7924]]



Subpart A--Tax on Structured Settlement Factoring Transactions


Sec.  157.5891-1T  Imposition of excise tax on structured settlement 
factoring transactions.

    (a) In general. Section 5891 imposes on any person who acquires, 
directly or indirectly, structured settlement payment rights in a 
structured settlement factoring transaction a tax equal to 40 percent 
of the factoring discount with respect to such factoring transactions.
    (b) Exceptions for certain approved transactions--(1) In general. 
The excise tax shall not apply to a structured settlement factoring 
transaction if the transfer of structured settlement payment rights is 
approved in advance in a qualified order.
    (2) Qualified order dispositive. A qualified order shall be treated 
as dispositive for purposes of this exception.
    (c) Definitions--(1) Applicable state statute means--(i) A statute 
that is enacted by the state in which the payee of the structured 
settlement is domiciled and that provides for the entry of an order, 
judgment, or decree described in paragraph (c)(4)(i) of this section; 
or
    (ii) If there is no such statute, a statute that is enacted by the 
state in which either the party to the structured settlement (including 
an assignee under a qualified assignment under section 130) or the 
person issuing the funding asset for the structured settlement is 
domiciled or has its principal place of business and that provides for 
the entry of such an order, judgment, or decree.
    (2) Applicable state court means, with respect to any applicable 
state statute, a court of the state that enacted such statute. If the 
payee of the structured settlement is not domiciled in the state that 
enacted the statute, the term also includes a court of the state in 
which the payee is domiciled.
    (3) Factoring discount means an amount equal to the excess of--
    (i) The aggregate undiscounted amount of structured settlement 
payments being acquired in the structured settlement factoring 
transaction; over
    (ii) The total amount actually paid by the acquirer to the person 
from whom such structured settlement payments are acquired.
    (4) Qualified order means a final order, judgment, or decree that--
    (i) Finds that the transfer of structured settlement payment rights 
does not contravene any federal or state statute, or the order of any 
court or responsible administrative authority, and is in the best 
interest of the payee, taking into account the welfare and support of 
the payee's dependents; and
    (ii) Is issued under the authority of an applicable state statute 
by an applicable state court, or is issued by the responsible 
administrative authority (if any) which has exclusive jurisdiction over 
the underlying action or proceeding which was resolved by means of the 
structured settlement.
    (5) Responsible administrative authority means the administrative 
authority that had jurisdiction over the underlying action or 
proceeding that was resolved by means of the structured settlement.
    (6) State includes the Commonwealth of Puerto Rico and any 
possession of the United States.
    (7) Structured settlement means an arrangement--
    (i) That is established by--
    (A) Suit or agreement for the periodic payment of damages 
excludable from the gross income of the recipient under section 
104(a)(2); or
    (B) Agreement for the periodic payment of compensation under any 
workers' compensation law excludable from the gross income of the 
recipient under section 104(a)(1); and
    (ii) Under which the periodic payments are----
    (A) Of the character described in section 130(c)(2)(A) and (B); and
    (B) Payable by a person who is a party to the suit or agreement or 
to the workers' compensation claim or by a person who has assumed the 
liability for such periodic payments under a qualified assignment in 
accordance with section 130.
    (8) Structured settlement factoring transaction means a transfer of 
structured settlement payment rights (including portions of structured 
settlement payments) made for consideration by means of sale, 
assignment, pledge, or other form of encumbrance or alienation for 
consideration other than--
    (i) The creation or perfection of a security interest in structured 
settlement payment rights under a blanket security agreement entered 
into with an insured depository institution in the absence of any 
action to redirect the structured settlement payments to such 
institution (or agent or successor thereof) or otherwise to enforce 
such blanket security interest as against the structured settlement 
payment rights; or
    (ii) A subsequent transfer of structured settlement payment rights 
acquired in a structured settlement factoring transaction.
    (9) Structured settlement payment rights means rights to receive 
payments under a structured settlement.
    (d) Coordination with other provisions of the Internal Revenue 
Code--(1) In general. If the applicable requirements of sections 72, 
104(a)(1), 104(a)(2), 130, and 461(h) were satisfied at the time the 
structured settlement involving structured settlement payment rights 
was entered into, the subsequent occurrence of a structured settlement 
factoring transaction shall not affect the application of the 
provisions of such sections to the parties to the structured settlement 
(including an assignee under a qualified assignment under section 130) 
in any taxable year.
    (2) No withholding of tax. The provisions of section 3405 regarding 
withholding of tax shall not apply to the person making the payments in 
the event of a structured settlement factoring transaction.
    (e) Effective dates--(1) In general. Section 5891 applies to 
structured settlement factoring transactions entered into on or after 
February 22, 2002. Section 5891(d) also applies to structured 
settlement factoring transactions entered into before February 22, 
2002.
    (2) Transition rule. In the case of a structured settlement 
factoring transaction entered into during the period beginning on 
February 22, 2002, and ending on July 1, 2002, no tax shall be imposed 
under section 5891(a) if--
    (i) The structured settlement payee is domiciled in a state (or 
possession of the United States) that has not enacted an applicable 
state statute (as defined in section 5891(b)(3)); and
    (ii) The person acquiring the structured settlement payment rights 
discloses to the structured settlement payee in advance of the 
structured settlement factoring transaction--
    (A) The amounts and due dates of the payments to be transferred;
    (B) The aggregate amount to be transferred;
    (C) The consideration to be received by the structured settlement 
payee for the transferred payments;
    (D) The discounted present value of the transferred payments 
(including the present value as determined in the manner described in 
section 7520); and
    (E) The expenses required under the terms of the structured 
settlement factoring transaction to be paid by the structured 
settlement payee or deducted from the proceeds of such transaction.

Subpart B--Procedure and Administration


Sec.  157.6001-1T  Records, statements, and special returns.

    (a) In general. Any person subject to tax under chapter 55 
(Structured

[[Page 7925]]

Settlement Factoring Transactions) of the Internal Revenue Code 
(chapter 55) must keep such complete and detailed records as are 
sufficient to enable the Internal Revenue Service (IRS) to determine 
accurately the amount of liability under chapter 55. (b) Notice by the 
IRS requiring returns, statements, or the keeping of records. The IRS 
may require any person, by notice served upon him, to make such 
returns, render such statements, or keep such specific records as will 
enable the IRS to determine whether or not the person is liable for tax 
under chapter 55.
    (c) Retention of records. The records required by this section must 
be kept at all times available for inspection by the IRS, and shall be 
retained so long as the contents thereof may become material in the 
administration of any internal revenue law.


Sec.  157.6011-1T  General requirement of return, statement, or list.

    Every person liable for tax under section 5891 must file a return 
with respect to the tax in accordance with the forms and instructions 
provided by the Internal Revenue Service.


Sec.  157.6061-1T  Signing of returns and other documents.

    Any return, statement, or other document required to be made with 
respect to a tax imposed by chapter 55 (Structured Settlement Factoring 
Transactions) of the Internal Revenue Code or the regulations 
thereunder must be signed by the person required to file the return, 
statement, or other document, or by the persons required or duly 
authorized to sign in accordance with the regulations, forms, or 
instructions prescribed with respect to such return, statement, or 
document. An individual's signature on such return, statement, or other 
document shall be prima facie evidence that the individual is 
authorized to sign the return, statement, or other document.


Sec.  157.6065-1T  Verification of returns.

    If a return, statement, or other document made under the provisions 
of chapter 55 of the Internal Revenue Code (chapter 55) or of subtitle 
F of the Code (subtitle F), or the regulations thereunder with respect 
to any tax imposed by chapter 55, or the form and instructions issued 
with respect to such return, statement, or other document, requires 
that it shall contain or be verified by a written declaration that it 
is made under the penalties of perjury, it must be so verified by the 
person or persons required to sign such return, statement, or other 
document. In addition, any other statement or document submitted under 
any provision of chapter 55 or subtitle F, or the regulations 
thereunder, with respect to any tax imposed by chapter 55 may be 
required to contain or be verified by written declaration that is made 
under the penalties of perjury.


Sec.  157.6071-1T  Time for filing returns.

    (a) In general. Except as provided in paragraph (b) of this 
section, returns required by Sec.  157.6011-1T (relating to returns of 
tax with respect to structured settlement factoring transactions) must 
be filed on or before the ninetieth day following the receipt of 
structured settlement payment rights in a structured settlement 
factoring transaction.
    (b) Returns relating to structured settlement payment rights 
received before February 19, 2003. Returns required by Sec.  157.6011-
1T that relate to structured settlement payment rights received on or 
before February 19, 2003, must be filed on or before May 20, 2003.


Sec.  157.6081-1T  Extension of time for filing the return.

    (a) Application for extension. An application for an extension of 
time for filing the return required by Sec.  157.6011-1T (relating to 
returns of tax with respect to structured settlement factoring 
transactions) must be completed in accordance with the forms and 
instructions provided by the Internal Revenue Service. It should be 
made before the expiration of the time within which the return 
otherwise must be filed, and failure to do so may indicate negligence 
and constitute sufficient cause for denial. It should, where possible, 
be made sufficiently early to permit consideration of the matter and 
reply before what otherwise would be the due date of the return. An 
extension of time for filing a return shall not extend the time for the 
payment of the tax or any part thereof unless specified to the contrary 
in the grant of the extension.
    (b) Filing of return. If an extension of time for filing the return 
is granted, a return must be filed before the period of extension 
expires.


Sec.  157.6091-1T  Place for filing returns.

    The return required by Sec.  157.6011-1T (relating to returns of 
tax with respect to structured settlement factoring transactions) must 
be filed at the place specified in the forms and instructions provided 
by the Internal Revenue Service.


Sec.  157.6151-1T  Time and place for paying of tax shown on returns.

    The tax under chapter 55 (Structured Settlement Factoring 
Transactions) of the Internal Revenue Code shown on any return must, 
without assessment or notice and demand, be paid at the time and place 
specified in the forms and instructions provided by the IRS. For 
provisions relating to the time and place for filing such return, see 
Sec.  157.6071-1T and Sec.  157.6091-1T. For provisions relating to the 
extension of time for paying the tax, see Sec.  157.6161-1T.


Sec.  157.6161-1T  Extension of time for paying tax.

    (a) In general--(1) Tax shown or required to be shown on return. 
The Internal Revenue Service may, at the request of the taxpayer, grant 
a reasonable extension of time for payment of the amount of any tax 
imposed by chapter 55 (Structured Settlement Factoring Transactions) of 
the Internal Revenue Code (chapter 55) and shown or required to be 
shown on any return. The period of such extension shall not exceed 6 
months from the date fixed for payment of such tax, except that in the 
case of a taxpayer that is abroad, such extension may exceed 6 months.
    (2) Extension of time for filing distinguished. The granting of an 
extension of time for filing a return does not extend the time for the 
payment of the tax or any part thereof unless so specified in the 
extension.
    (b) Certain rules relating to extension of time for paying income 
tax to apply. The provisions of Sec.  1.6161-1(b), (c), and (d) of this 
chapter (relating to a requirement for undue hardship, to the 
application for extension, and to payment pursuant to an extension) 
shall apply to extensions of time for payment of the tax imposed by 
chapter 55 of the Internal Revenue Code.


Sec.  157.6165-1T  Bonds where time to pay tax has been extended.

    If an extension of time for payment is granted under section 6161, 
the Internal Revenue Service may, if it deems necessary, require a bond 
for the payment, in accordance with the terms of the extension, of the 
amount with respect to which the extension is granted. However, the 
bond shall not exceed double the amount with respect to which the 
extension is granted. For provisions relating to the form of bonds, see 
the regulations under section 7101 contained in part 301 (Regulations 
on Procedure and Administration) of this chapter.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    2. The authority citation for part 602 continues to read as 
follows:


[[Page 7926]]


    Authority: 26 U.S.C. 7805.

    3. In Sec.  602.101, paragraph (b) is amended by adding entries in 
numerical order to the table as follows:


Sec.  602.101  OMB control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                          Current OMB
     CFR part or section identified and described         control No.
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                                * * * * *
157.6001-1T..........................................          1545-1824
157.6011-1T..........................................          1545-1824
157.6081-1T..........................................          1545-1824
157.6161-1T..........................................          1545-1824
 
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David Mader,
Assistant Deputy Commissioner of Internal Revenue.

    Approved: December 17, 2002.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 03-3864 Filed 2-18-03; 8:45 am]
BILLING CODE 4830-01-P