Qualified Settlement Funds
and Section 468B, by Robert W.
Only the net amount of damages received from qualified settlement funds is included in gross income.
The large majority of securities and other class-action cases result in the establishment of a qualified settlement fund from which legal fees are paid directly.
Qualified settlement funds include the designated settlement fund plus liabilities under tort, environmental, breach-of-contract, violation-of-law, and other claims as designated by the IRS.
A qualified settlement fund (QSF) allows claimants to set up structured settlements without defendants' participation, so plaintiffs can receive the tax advantages of these settlements on terms, that best meet their needs.
IRS guidance: In a series of letter rulings, (16) the Service ruled that contingent attorneys' fees paid from qualified settlement funds
, as defined by Sec.
pension plans and bankrupt estates) and (4) administrators of qualified settlement funds
Qualified settlement funds
are established under a governmental authority (but not necessarily under a court order) to resolve or satisfy a taxpayer's liabilities for certain claims arising out of environmental law; a tort, breach of contract or violation of laws; or designated in a revenue ruling or revenue procedure.
468B dealing with qualified settlement funds
did not provide guidance for accounts and funds governed by Sec.
468B trust, also known as a qualified settlement fund
(QSF), is often set up to be the repository of moneys in settlement of a case.