Qualified settlement funds (or Section 468B trusts) have blossomed into an important dispute resolution vehicle possessing remarkable tax efficiency. The benefits of a QSF can be of staggering proportions. They are specifically authorized by Section 468B of the Internal Revenue Code and Treasury Regulations that lay out necessary requirements and procedures. In fact, the IRS has expanded on the statute, morphing the more sanguine "designated settlement fund" into the broader and more flexible QSF.
QSFs receive special tax treatment, generally obviating the constructive receipt and economic benefit tax doctrines. They do so for an enormously valuable policy reason approved by Congress and the IRS: dispute resolution. Monies can be transferred to a QSF and are then deductible by the settling defendant(s), yet will not constitute income to the payees until the QSF distributes them.
QSFs conserve assets; enable the resolution of difficult and sensitive issues among co-plaintiffs; facilitate the resolution of battles among competing co-counsel; and facilitate structured settlements that can provide a fiscally conservative payout of monies to claimants. Such fiscal conservation can assist in their healthcare and life-planning, and can serve a spendthrift and asset protection function as well.
Wood LLP works with plaintiffs and their counsel nationwide on the formation and architecture of QSFs. We are also engaged by defendants to assist in their own tax and litigation management planning with QSFs. In 2009, Robert W. Wood completed a massive legal treatise entitled Qualified Settlement Funds and Section 468B, the first legal book available in this critical expanding field. He is considered a national authority. A former Commissioner of the IRS said "Wood explains these subjects in a detailed by understandable manner . . . his new treatise is a must." (Gibbs, Tax Notes, April 6, 2009, p. 97.)
We have formed, advised, administered or liquidated qualified settlement funds nationwide (in class actions as well as in non-class cases) in the following fields:
Robert Wood regularly speaks nationally to accountant, attorney and business groups, and he has published hundreds of articles on the tax treatment of litigation payments for legal, accounting, tax and employment publications.
For articles we have written about QSFs, see:
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Qualified Settlement Funds in Corporate Transactions, Vol. 144, No. 5, Tax Notes (August 4, 2014), p. 623.
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Reprising Single-Claimant Qualified Settlement Funds, Vol. 143, No. 12, Tax Notes (June 23, 2014), p. 1445.
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Qualified Settlement Funds vs. Transaction Escrows, Vol. 22, No. 11, The M&A Tax Report (June 2014), p. 1.
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State Tax Conformity And Qualified Settlement Funds, by Robert W. Wood and Steven E. Hollingworth, Vol. 133, No. 10, Tax Notes (December 5, 2011), p. 1277. Simultaneously published in Vol. 62, No. 10, State Tax Notes (December 5, 2011), p. 700.
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Qualified Settlement Funds Cut Taxes and Disputes, Vol. 38, No. 1, Litigation (Fall 2011), p. 9.
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Can You Form a Qualified Settlement Fund With a Judgment?, Vol. 129, No. 9, Tax Notes (November 29, 2010), p. 1017.
468B Qualified Settlement Funds Pending Appeal?, Vol. 128, No. 2, Tax Notes (July 12, 2010), p. 207.
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Ten Reasons Not to Form a Qualified Settlement Fund, Vol. 127, No. 7, Tax Notes (May 17, 2010), p. 823.
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Unqualifying Qualified Structured Settlements?, Vol. 127, No. 5, Tax Notes (May 3, 2010), p. 581.
'Retroactive' Qualified Settlement Funds: 10 Things You Should Know, Vol. 126, No. 6, Tax Notes (February 8, 2010), p. 793.
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The QSF, The Employee Advocate (Spring/Summer 2009), p. 25.
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Qualified Settlement Funds: A Mechanism Whose Time Has Come, Los Angeles Daily Journal (July 23, 2009), p. 6. Simultaneously published in San Francisco Daily Journal (July 23, 2009), p. 6.
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Single-Claimant Qualified (468B)
Settlement Funds?, Vol. 122, No. 1, Tax Notes (January 5, 2009), p. 71.
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Ten Things I Love About Qualified Settlement Funds, Vol. 2008, No. 231, BNA Daily Tax Report (December 2, 2008), p. J-1. Reprinted in Tax Management Weekly Report, Vol. 27, No. 49 (December 8, 2008), p. 1656.
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Nonqualified Settlement Ruling Spurs Damage Structures, Vol. 120, No. 2, Tax Notes (July 14, 2008), p. 141.
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Curing Constructive Receipt for Tax Purposes, Vol. 118, No. 13, Tax Notes (March 24, 2008), p. 1307. Reprinted in Substance & Forum (April 30, 2008).
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Electing Code Sec. 468B Trust Treatment for Lawyer Trust Accounts After Receiving Settlement Proceeds, Vol. 10, No. 1, Journal of Tax Practice & Procedure (February - March 2008), p. 25.
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Rulings Make Qualified Settlement Funds More Attractive, Tax Notes (May 8, 2006), p. 673.
References available on request.
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