Potential tax benefits represent both a fundamental advantage of structured settlements and a rationale for considering structured settlement annuities as part of almost any personal injury settlement plan.
Virtually every member of the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) has a basic understanding of the statutory framework for the predominant method (“qualified assignments”) by which structured settlements are funded and the historic legislation (the Periodic Payment Settlement Act of 1982) which codified earlier Revenue Rulings into IRC Section 104(a)(1) and (2) and added IRC Section 130.
Continuing a series of articles evaluating whether NSSTA needs to re-think and re-design its educational programming and educational marketing to strategically position structured settlement annuities as the core product within personal injury settlement planning, this article asks: : “whether and how does NSSTA currently educate its members about taxation issues impacting personal injury settlement planning?” Note: as a point of comparison, SSP educational programs and resources are also considered.
NSSTA offered its members three primary education programs during 2019: it Certified Structured Settlement Consultant (CSSC) Certification Program, the NSSTA Annual Conference and the NSSTA Fall Conference.
Professor Milani’s CSSC Tax Program
The NSSTA CSSC Program, co-sponsored with the University of Notre Dame, featured two complementary tax sessions. The first, presented by Notre Dame Professor Ken Milani, has become a popular and fundamental offering of every NSSTA CSSC Course.
Titled simply “Tax Program”, Professor Milani’s presentation includes a 34-page single space handout with eight (8) “learning exercises” designed around three objectives – to enable participants to: 1) evaluate the weights and relevance of tax authorities; 2) confirm a comprehensive understanding of current tax authorities relevant to structured settlements; and 3) increase participants' capability to identify tax traps and opportunities when structuring settlements.
Professor Milani’s comprehensive 2019 tax introduction extended far beyond what most structured settlement professionals or settlement planners typically encounter in any other learning venue. Here is a summary outline of his presentation:
- Sources of Tax Authority – including Congressional Committee Reports, IRS Regulations, Revenue Ruling and Procedures, Letter Rulings, Court Decisions
- What Comprises Gross Income and When is It Recognized?
- What are the Deductions for and from Adjusted Gross Income?
- Tax Rates
- Tax Terminology
- Section 104(a) Exclusions
- Punitive Damages
- 1996 Legislation – Impact on Section 104(a)(2)
- Section 130 Assignments
- When Non-excluded Income is Taxable
- When Deductions of Damage Awards May Be Taken
- Impact of Reimbursed Medical Care Expenses
- Deductibility of Legal Fees
- Substantiating Tax Treatment
- Allocating Settlement Proceeds
- Federal Tax Withholding
- Consequences of Underpaying Tax Liability
- Estate and Gift Tax
- General Planning in Structured Settlements
Industry tax expert Robert Wood supplemented Professor Milani’s comprehensive CSSC tax presentation with a discussion titled “How do Changes in the Tax Cuts and Jobs Act Affect Your Practice?” Together, Professor Milani and Robert Wood provided 30 NSSTA CSSC participants with an extremely valuable and time-efficient tax overview.
What about the rest of NSSTA’s 1200 members?
NSSTA’s CSSC program has been in existence for more than 25 years. Less than half of NSSTA’s current members are CSSC certified. The CSSC Program has no continuing education requirement. NSSTA is currently evaluating the future of its CSSC and Master’s Certificate in Structured Settlement Consulting (MSSC) programs.
Unlike the NSSTA CSSC program, neither of NSSTA’s two other 2019 educational programs (its Annual Conference and its Fall Conference) provided NSSTA members with any tax education.
Paradoxically, one of the highlights of many prior NSSTA educational conferences was a NSSTA Legal Committee Panel, humorously referred to as “The Tax Posse” because the majority of its presentation focused on tax developments. The Legal Committee changed the title of its educational presentations in 2006 to “All Things Considered” to more accurately describe an expanding educational agenda.
More recently, the Legal Panels at NSSTA Educational Conferences have focused on “Re-cycled Annuities” and secondary market litigation under the presentation title of “Law and Order”. The last “Tax Posse” gathering occurred in 2014 with the most recent “IRS Update” in 2015. Robert Wood replicated his 2019 CSSC presentation at a NSSTA conference in 2018.
By comparison, the SSP 2019 Annual provided its members with two tax related presentations: 1) a general “Tax Update for Plaintiffs and Settlement Planners”; and 2) a discussion titled “Kiddie Tax: Analysis and Pittfalls”.
CONCLUSION: Professor Milani’s course outline above should serve as a reminder to NSSTA members of how many tax topics impact settlement planning and require continuing study. Significantly, the outline itself does not even list such tax topics as: constructive receipt, economic benefit, IRC 139F, 468B, Rev Proc 93-34, or IRC 5891(c )(1) which are challenging in the context of academic study, but even more so when planning a complicated settlement. Without necessarily reprising the “Tax Posse”, perhaps NSSTA and its Legal Committee should consider taxation as more of a continuing priority for future educational programs.