Qualified Order Exception for Structured Settlement Factoring

§ 5891. Structured settlement factoring transactions(a) Imposition of taxThere 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. (b) Exception for certain approved transactions(1) In generalThe tax under subsection (a) shall not apply in the case of a structured settlement factoring transaction in which the transfer of structured settlement payment rights is approved in advance in a qualified order. (2) Qualified orderFor purposes of this section, the term “qualified order” means a final order, judgment, or decree which—(A) finds that the transfer described in paragraph (1)—(i) does not contravene any Federal or State statute or the order of any court or responsible administrative authority, and (ii) is in the best interest of the payee, taking into account the welfare and support of the payee’s dependents, and (B) is issued—(i) under the authority of an applicable State statute by an applicable State court, or (ii) 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. (3) Applicable State statuteFor purposes of this section, the term “applicable State statute” means a statute providing for the entry of an order, judgment, or decree described in paragraph (2)(A) which is enacted by—(A) the State in which the payee of the structured settlement is domiciled, or (B) if there is no statute described in subparagraph (A), 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. (4) Applicable State courtFor purposes of this section—(A) In generalThe term “applicable State court” means, with respect to any applicable State statute, a court of the State which enacted such statute. (B) Special ruleIn the case of an applicable State statute described in paragraph (3)(B), such term also includes a court of the State in which the payee of the structured settlement is domiciled. (5) Qualified order dispositiveA qualified order shall be treated as dispositive for purposes of the exception under this subsection. (c) DefinitionsFor purposes of this section—(1) Structured settlementThe term “structured settlement” means an arrangement—(A) which is established by—(i) suit or agreement for the periodic payment of damages excludable from the gross income of the recipient under section 104(a)(2), or (ii) 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