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United States Code (Last Updated: May 24, 2014) |
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Title 26. INTERNAL REVENUE CODE |
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SubTitle A. Income Taxes |
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Chapter 1. NORMAL TAXES AND SURTAXES |
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SubChapter E. Accounting Periods and Methods of Accounting |
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Part II. METHODS OF ACCOUNTING |
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SubPart C. Taxable Year for Which Deductions Taken |
§ 468B. Special rules for designated settlement funds
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(a) In general For purposes of section 461(h), economic performance shall be deemed to occur as qualified payments are made by the taxpayer to a designated settlement fund.
(b) Taxation of designated settlement fund (1) In general There is imposed on the gross income of any designated settlement fund for any taxable year a tax at a rate equal to the maximum rate in effect for such taxable year under section 1(e).
(2) Certain expenses allowed For purposes of paragraph (1), gross income for any taxable year shall be reduced by the amount of any administrative costs (including State and local taxes) and other incidental expenses of the designated settlement fund (including legal, accounting, and actuarial expenses)— (A) which are incurred in connection with the operation of the fund, and (B) which would be deductible under this chapter for purposes of determining the taxable income of a corporation. No other deduction shall be allowed to the fund. (3) Transfers to the fund In the case of any qualified payment made to the fund— (A) the amount of such payment shall not be treated as income of the designated settlement fund, (B) the basis of the fund in any property which constitutes a qualified payment shall be equal to the fair market value of such property at the time of payment, and (C) the fund shall be treated as the owner of the property in the fund (and any earnings thereon). (4) Tax in lieu of other taxation The tax imposed by paragraph (1) shall be in lieu of any other taxation under this subtitle of income from assets in the designated settlement fund.
(5) Coordination with subtitle F For purposes of subtitle F— (A) a designated settlement fund shall be treated as a corporation, and (B) any tax imposed by this subsection shall be treated as a tax imposed by section 11. (c) Deductions not allowed for transfer of insurance amounts No deduction shall be allowable for any qualified payment by the taxpayer of any amounts received from the settlement of any insurance claim to the extent such amounts are excluded from the gross income of the taxpayer.
(d) Definitions For purposes of this section— (1) Qualified payment The term “qualified payment” means any money or property which is transferred to any designated settlement fund pursuant to a court order, other than— (A) any amount which may be transferred from the fund to the taxpayer (or any related person), or (B) the transfer of any stock or indebtedness of the taxpayer (or any related person). (2) Designated settlement fund The term “designated settlement fund” means any fund— (A) which is established pursuant to a court order and which extinguishes completely the taxpayer’s tort liability with respect to claims described in subparagraph (D), (B) with respect to which no amounts may be transferred other than in the form of qualified payments, (C) which is administered by persons a majority of whom are independent of the taxpayer, (D) which is established for the principal purpose of resolving and satisfying present and future claims against the taxpayer (or any related person or formerly related person) arising out of personal injury, death, or property damage, (E) under the terms of which the taxpayer (or any related person) may not hold any beneficial interest in the income or corpus of the fund, and (F) with respect to which an election is made under this section by the taxpayer. An election under this section shall be made at such time and in such manner as the Secretary shall by regulation prescribe. Such an election, once made, may be revoked only with the consent of the Secretary. (3) Related person The term “related person” means a person related to the taxpayer within the meaning of section 267(b).
(e) Nonapplicability of section This section (other than subsection (g)) shall not apply with respect to any liability of the taxpayer arising under any workers’ compensation Act or any contested liability of the taxpayer within the meaning of section 461(f).
(f) Other funds Except as provided in regulations, any payment in respect of a liability described in subsection (d)(2)(D) (and not described in subsection (e)) to a trust fund or escrow fund which is not a designated settlement fund shall not be treated as constituting economic performance.
(g) Clarification of taxation of certain funds (1) In general Except as provided in paragraph (2), nothing in any provision of law shall be construed as providing that an escrow account, settlement fund, or similar fund is not subject to current income tax. The Secretary shall prescribe regulations providing for the taxation of any such account or fund whether as a grantor trust or otherwise.
(2) Exemption from tax for certain settlement funds An escrow account, settlement fund, or similar fund shall be treated as beneficially owned by the United States and shall be exempt from taxation under this subtitle if— (A) it is established pursuant to a consent decree entered by a judge of a United States District Court, (B) it is created for the receipt of settlement payments as directed by a government entity for the sole purpose of resolving or satisfying one or more claims asserting liability under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, (C) the authority and control over the expenditure of funds therein (including the expenditure of contributions thereto and any net earnings thereon) is with such government entity, and (D) upon termination, any remaining funds will be disbursed to such government entity for use in accordance with applicable law. For purposes of this paragraph, the term “government entity” means the United States, any State or political subdivision thereof, the District of Columbia, any possession of the United States, and any agency or instrumentality of any of the foregoing.
References In Text
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, referred to in subsec. (g)(2)(B), is Pub. L. 96–510,
Amendments
2006—Subsec. (g). Pub. L. 109–222 reenacted heading without change and amended text of subsec. (g) generally. Prior to amendment, text read as follows: “Nothing in any provision of law shall be construed as providing that an escrow account, settlement fund, or similar fund is not subject to current income tax. The Secretary shall prescribe regulations providing for the taxation of any such account or fund whether as a grantor trust or otherwise.”
Subsec. (g)(3). Pub. L. 109–432 struck out heading and text of par. (3). Text read as follows: “Paragraph (2) shall not apply to accounts and funds established after
1990—Subsec. (e). Pub. L. 101–508 substituted “This section (other than subsection (g))” for “This section”.
1988—Subsec. (b)(2). Pub. L. 100–647, § 1018(f)(4)(B), substituted “No other” for “no other” in concluding provisions.
Subsec. (b)(2)(B). Pub. L. 100–647, § 1018(f)(4)(A), substituted “a corporation.” for “the corporation,”.
Subsec. (d)(1)(A). Pub. L. 100–647, § 1018(f)(1), inserted “(or any related person)” after “taxpayer”.
Subsec. (d)(2)(A). Pub. L. 100–647, § 1018(f)(2), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “which is established pursuant to a court order,”.
Subsec. (d)(2)(E). Pub. L. 100–647, § 1018(f)(1), inserted “(or any related person)” after “taxpayer”.
Subsec. (g). Pub. L. 100–647, § 1018(f)(5)(A), added subsec. (g).
Effective Date Of Amendment
Pub. L. 109–432, div. A, title IV, § 409(b),
Pub. L. 109–222, title II, § 201(b),
Amendment by Pub. L. 101–508 effective as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 11702(j) of Pub. L. 101–508, set out as a note under section 59 of this title.
Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Effective Date
Section effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as an Effective Date of 1986 Amendment note under section 48 of this title.
Miscellaneous
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after
Pub. L. 99–514, title XVIII, § 1807(a)(7)(C),
Pub. L. 99–514, title XVIII, § 1807(a)(7)(D),