If you ask around about the tax consequences of selling your structured settlement for a lump sum you may find that you get different answers. After years in the business, our professionals are all too familiar with the series of questions. The multiple answers you get regarding the tax implications from the sale of the structured settlement may be due to the multiple issues involved.
26 U.S.C. 5891 is specifically implicated when you sell a structured settlement. Here is what you need to know, if you are the person selling structured settlement payments, about 26 U.S.C . 5891: This section applies to buyers of structured settlements and the tax consequences (i.e. penalties) if said federal law is not strictly complied with. Specifically it provides: “here is hereby imposed 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 as determined under subsection (c)(4) with respect to such factoring transaction”. The tax of sale or acquisition of structured settlement payment rights is NOT applicable if a qualified order is procured. What is a “qualified order” and how the company that is buying structured settlement acquires a “qualified order” is addressed elsewhere on this site. That said, it is important to keep in mind that is incumbent on the company, not you, to get a qualified order in connection with the sale of a structured settlement.
Next question, we frequently hear is “Do I pay taxes on the lump sum I get from selling my structured settlement for a lump sum?” It is often one of the initial questions a person may inquire about. As you know, if you are receiving a structured settlement- the payments are coming to you tax free. The tax free status of the structured settlement payments (whether they are monthly, annually, lump sums, or life contingent) results from Section 104(a)(2) of the IRS Code.
How is the tax free status impacted if you were to go ahead and sell structured settlements for a lump sum? Would you owe any taxes on the lump sum you received from the sale of the structured settlement? At CSF we do not provide legal, tax or financial advice to our customers. It is not our place to do so- it is our place to provide you with the best offer you have received after you have shopped around your structured settlement payments- guaranteed. THAT SAID, we are also happy to provide you with names and contact information for professionals around the country, with expertise or familiarity with the legal and financial ramifications of structured settlement sales. Contact us for this information and we are happy to provide you with it—even if you are in the processing of selling structured settlement to another buyer or you have several quotes and before you decide you want to speak with some.
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