FOR IMMEDIATE RELEASE, Contact: (202) 225-7601
March 11, 1999
No. OV-3
Congressman Amo Houghton (R-NY), Chairman, Subcommittee on Oversight of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on the tax treatment of structured settlements. The hearing will take place on Thursday, March 18, 1999, in room B-318 Rayburn House Office Building, beginning at 1:00 p.m.
Oral testimony at this hearing will be from invited witnesses only. Witnesses will include an official from the U.S. Department of the Treasury and representatives from the National Structured Settlements Trade Association and the National Association of Settlement Purchasers. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing.
BACKGROUND:
Present law provides tax-favored treatment both to the payor and recipient of "structured settlements" for damages paid as a result of personal injury. A structured settlement consists of a series of set payments made over a determinable period of time for damages paid as a result of personal injury.
Generally, section 130 of the Internal Revenue Code grants tax-favored treatment to structured settlements payments. If the payments qualify, the payor can deduct the amount of payments made to the recipient, and the recipient can exclude the same amount from income. To qualify for tax-favored treatment under section 130: (1) the payments must be fixed as to amount and time, (2) the payments cannot be accelerated, deferred, increased, or decreased by the recipient, (3) the payor's obligation is no greater than the liable person's obligation, and (4) the payments are excludable by the recipient as those under section 104(a)(2) of the code.
In recent years, firms called "factoring companies" have purchased from recipients the right to receive their periodic payments. Generally, the recipient receives a lump-sum amount at a discount from the present value of the payment stream. There is some question whether these transactions violate section 130 by "accelerating" the payments, calling into question the exclusion for the payor and whether a portion of the payment may be includable as income to the recipient. Critics of these transactions have also argued that factoring companies take advantage of the recipients who may depend on the flow of income. Those who favor such transactions contend that they do not violate section 130 and that some recipients are well-served by the opportunity to receive lump-sum payments.
The President, in his fiscal year 2000 budget, proposed an excise tax of 40 percent on the difference between the amount paid by the factoring company and the value of the acquired income stream. The proposal included an exception for purchases entered into under court order finding of hardship.
Representatives E. Clay Shaw, Jr., (R-FL) and Fortney "Pete" Stark, (D-CA) introduced H.R. 263, a bill which provides for a 50 percent excise tax on the discount with an exception for court-approved hardship to the recipient.
In announcing the hearing, Chairman Houghton stated: "When Congress last addressed the tax treatment of structured settlements, it could not have foreseen the market that currently exists in the purchase of structured settlements. It is timely and appropriate that the Subcommittee examine the tax treatment of these transactions. I am looking forward to hearing both sides of this debate."
FOCUS OF THE HEARING:
The hearing will focus on the tax treatment of structured settlements and legislative proposals to alter the tax treatment of the purchase of structured settlements.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement for the printed record of the hearing should submit six (6) single-spaced copies of their statement, along with an IBM compatible 3.5-inch diskette in WordPerfect 5.1 format, with their name, address, and hearing date noted on a label, by the close of business, Thursday, April 1, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. If those filing written statements wish to have their statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Oversight office, room 1136 Longworth House Office Building, by close of business the day before the hearing.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request for written comments must conform to the guidelines listed below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.
1. All statements and any accompanying exhibits for printing must be submitted on an IBM compatible 3.5-inch diskette in WordPerfect 5.1 format, typed in single space and may not exceed a total of 10 pages including attachments. Witnesses are advised that the Committee will rely on electronic submissions for printing the official hearing record.
2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments by the Committee, must include on his statement or submission a list of all clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the name, company, address, telephone and fax numbers where the witness or the designated representative may be reached. This supplemental sheet will not be included in the printed record.
The above restrictions and limitations apply only to material being submitted for printing. Statements and exhibits or supplementary material submitted solely for distribution to the Members, the press, and the public during the course of a public hearing may be submitted in other forms.
The
Committee seeks to make its facilities accessible to persons with
disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event
(four business days notice is requested). Questions with regard to
special accommodation needs in general (including availability of
Committee materials in alternative formats) may be directed to the
Committee as noted above.