[Federal Register Volume 69, Number 130 (Thursday, July 8, 2004)]
[Rules and Regulations]
[Pages 41192-41195]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15124]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 157 and 602

[TD 9134]
RIN 1545-BB14


Excise Tax Relating to Structured Settlement Factoring 
Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations relating to the 
manner and method of reporting and paying the nondeductible 40 percent 
excise tax

[[Page 41193]]

imposed on any person who acquires structured settlement payment rights 
in a structured settlement factoring transaction. The regulations 
provide the guidance necessary to comply with the reporting 
requirements of the excise tax.

DATES: Effective Date: These regulations are effective July 8, 2004.
    Applicability Dates: For dates of applicability, see Sec.  
157.5891-1(e).

FOR FURTHER INFORMATION CONTACT: Shareen S. Pflanz of the Office of 
Associate Chief Counsel (Income Tax and Accounting) at 202-622-4920 
(not a toll-free call).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collections of information contained in these final regulations 
have been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-1824. The collections of information 
in these final regulations are in Sec. Sec.  157.6001-1, 157.6011-1, 
157.6081-1, and 157.6161-1. This information is required by the IRS to 
verify that the excise tax imposed under section 5891 is properly 
reported on Form 8876 and timely paid. This information will be used 
for that purpose.
    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.
    The burden is reflected in the burden estimate on Form 8876. 
Suggestions for reducing the burden of the collection of information in 
these regulations should be sent to the Internal Revenue Service, Attn: 
IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 
20224, and to the Office of Management and Budget, Attn: Desk Officer 
for the Department of the Treasury, Office of Information and 
Regulatory Affairs, Washington, DC 20503.
    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 contains final regulations that replace the temporary 
regulations in 26 CFR part 157. The regulations provide guidance on the 
proper manner and method of reporting and paying the 40 percent excise 
tax imposed under section 5891. The 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, Pub. L. 
107-134, (115 Stat. 2427, 2436-2439). On February 19, 2003, temporary 
regulations (TD 9042) adding a new part 157, Excise Tax on Structured 
Settlement Factoring Transactions, to title 26 of the Code of Federal 
Regulations were published in the Federal Register (68 FR 7922). A 
notice of proposed rulemaking (REG-139768-02) cross-referencing the 
temporary regulations was also published in the Federal Register (68 FR 
7956). No public hearing was requested or held. One written comment 
responding to the notice of proposed rulemaking was received in which 
the writer commended the issuance of the temporary and proposed 
regulations and urged that they be finalized without change. The 
proposed regulations are adopted by this Treasury decision without any 
substantive changes.

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. It is hereby 
certified that the collection of information in these regulations will 
not have a significant economic impact on a substantial number of small 
entities. This certification is based upon the expectation that the 
excise tax imposed by section 5891 will apply to few structured 
settlement factoring transactions. Therefore, a Regulatory Flexibility 
Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is 
not required. Pursuant to section 7805(f) of the Code, the proposed 
regulations preceding these final regulations were submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on their impact.

Drafting Information

    The principal author of these final regulations is Shareen S. 
Pflanz, 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.

Adoption of Amendments to the Regulations

0
Accordingly, title 26 CFR parts 157 and 602 are amended as follows:
0
Paragraph 1. Part 157 is revised to read as follows:

PART 157--EXCISE TAX ON STRUCTURED SETTLEMENT FACTORING 
TRANSACTIONS

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

    Authority: 26 U.S.C. 7805.
157.6001-1 also issued under 26 U.S.C. 6001.
157.6011-1 also issued under 26 U.S.C. 6011.
157.6061-1 also issued under 26 U.S.C. 6061.
157.6071-1 also issued under 26 U.S.C. 6071.
157.6091-1 also issued under 26 U.S.C. 6091.
Section 157.6161-1 also issued under 26 U.S.C. 6161.

Subpart A--Tax on Structured Settlement Factoring Transactions


Sec.  157.5891-1  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

[[Page 41194]]

discount with respect to such factoring transaction.
    (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 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--
    (A) 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
    (B) 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. This section applies to structured settlement 
factoring transactions entered into on or after July 8, 2004. For 
structured settlement factoring transactions entered into before July 
8, 2004, see Sec.  157.5891-1T of this chapter (2003-1 C.B. 564. See 
Sec.  601.601(d)(2) of this chapter.), as it appeared in the April 1, 
2003, edition of 26 CFR part 157.

Subpart B--Procedure and Administration


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

    (a) In general. Any person subject to tax under chapter 55 
(Structured Settlement Factoring Transactions) of the Internal Revenue 
Code 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.  157.6011-1  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.  157.6061-1  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

[[Page 41195]]

Code or the regulations under chapter 55 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.  157.6065-1  Verification of returns.

    If a return, statement, or other document made under the provisions 
of chapter 55 (Structured Settlement Factoring Transactions) or of 
subtitle F of the Internal Revenue Code, or the regulations under those 
provisions 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 under those provisions, with respect to any tax 
imposed by chapter 55 may be required to contain or be verified by 
written declaration that it is made under the penalties of perjury.


Sec.  157.6071-1  Time for filing returns.

    (a) In general. Except as provided in paragraph (b) of this 
section, returns required by Sec.  157.6011-1 (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.  157.6011-1 
that relate to structured settlement payment rights received on or 
before February 19, 2003, must be filed on or before May 20, 2003.


Sec.  157.6081-1  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.  157.6011-1 (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.  157.6091-1  Place for filing returns.

    The return required by Sec.  157.6011-1 (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.  157.6151-1  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 Internal 
Revenue Service. For provisions relating to the time and place for 
filing such return, see Sec.  157.6071-1 and Sec.  157.6091-1. For 
provisions relating to the extension of time for paying the tax, see 
Sec.  157.6161-1.


Sec.  157.6161-1  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 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 Code.


Sec.  157.6165-1  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

0
Par. 2. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.


0
Par. 3. In Sec.  602.101, paragraph (b) is amended by removing the 
entries for ``157.6001-1T,'' ``157.6011-1T,'' ``157.6081-1T,'' and 
``157.6161-1T'' and adding entries in numerical order to the table to 
read, in part, as follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                             Current OMB
       CFR part or section identified and described          control No.
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                                * * * * *
157.6001-1................................................     1545-1824
157.6011-1................................................     1545-1824
157.6081-1................................................     1545-1824
157.6161-1................................................     1545-1824
 
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Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: June 23, 2004.
Gregory Jenner,
Acting, Assistant Secretary of the Treasury.
[FR Doc. 04-15124 Filed 7-7-04; 8:45 am]
BILLING CODE 4830-01-P