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    The legal textbook, “Structured Settlements and Periodic Payment Judgments” defines structured settlements in Section 1.01 and consists of four paragraphs, the key sentences of which are the following:

    • A structured settlement could be defined as any resolution of a dispute where one party is to receive something other than nothing or a lump sum.
    • As used in this book, structured settlement refers to the resolution of personal injury cases that are settled by payments over time rather than a single sum.
    • They often involve monthly payments over a claimant’s lifetime but can include cash up front and periodic payments of varying amounts on specified due dates.
    • The Internal Revenue Code contains a definition of structured settlements in a section IRC § 5891(c)(1) that deals with excise taxes on factoring companies that are involved in the transfer of structured settlement rights.
    • Some state statutes that address periodic payment judgments or protection of structured settlement rights holders that propose to transfer their rights have definitions of structured settlement for the purpose of these statutes. Some regulatory definitions for structured settlement also exist.
    • The Internal Revenue Code uses the phrase periodic payments in the section IRC § 104(a)(2) that excludes from income tax amounts received from a personal physical injury or physical sickness.

    A more detailed explanation of the Internal Revenue Code definition of structured settlement appears in Section 16.03 of  “Structured Settlements and Periodic Payment Judgments”:

    The definition of structured settlement in IRC § 5891(c)(1) was enacted as part of the Victims of Terrorism Tax Relief Act that President George Bush signed into law on January 23, 2002. It represents the first time that term had been defined under United States federal tax law. In that subsection, structured settlement is defined as an arrangement that meets a two-part test. First, the arrangement must be established by:

    (i) suit or agreement for the periodic payment of damages excludable from the gross income of the recipient under § 104(a)(2), or

    (ii) agreement for the periodic payment of compensation under any worker’s compensation law excludable from gross income of the recipient under § 104(a)(1).

    Second, the periodic payments under such an arrangement are both:

    (i) of the character described in sub-paragraphs (A) and (B) of § 130(c)(2) and

    (ii) payable by a person who is a party to the suit or agreement or to the workers’ compensation claim or by a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with § 130.

    The first test of the definition establishes its scope. The definition encompasses judgments and settlements for periodic payment of damages that satisfy the requirements of IRC § 104(a)(2). The definition also encompasses compromises of workers’ compensation awards that include periodic payment.

    The second test addresses the required characteristics for both the periodic payments and the payer of the periodic payments under a structured settlement. The periodic payments must be “of the character” described in IRC § 130 (c)(2)(A) and (B), meaning they are “fixed and determinable as to amount and time of payment” and “cannot be accelerated, deferred, increased, or decreased by the recipient.” The periodic payer must be a party to the suit, agreement or workers’ compensation claim or an assignee under an IRC § 130 assignment.

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