Depositing settlement into a §468B QSF lets plaintiffs delay constructive receipt while negotiating allocations and structures.
IRC §468B and Reg §1.468B-1 create Qualified Settlement Funds — court-approved trusts that receive settlement proceeds on behalf of one or more claimants. Because payments to the QSF are not constructively received by claimants, plaintiffs get time (often years) to (1) negotiate liens (Medicare/Medicaid), (2) structure the settlement, (3) allocate among multiple plaintiffs, (4) design SNTs. Especially critical for class actions, mass torts, and multi-plaintiff cases.
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Damages 'on account of' personal physical injury or physical sickness are 100% excluded from gross income.
Structured PI settlement pays tax-free installments for life via a qualified assignment — better than lump-sum + investing.
Plaintiff attorneys can structure their contingent fee via §130 QAssignment — deferring tax to payment years.
For taxable settlements, use a Plaintiff Recovery Trust or origin-of-claim allocation to avoid attorney fees being taxed to plaintiff.
If emotional distress ORIGINATES from a physical injury, entire settlement is tax-free — even the emotional portion.
IRC §62(a)(21) allows above-line deduction for attorney fees on federal whistleblower recoveries — full net-of-fees tax.
MSA earmarks portion of PI settlement for future Medicare-covered care so plaintiff doesn't lose future Medicare eligibility.
Forced to repay income taxed in a prior year? §1341 lets you deduct now OR recompute prior year — take the bigger benefit.