Internal Revenue Code · 26 U.S.C.
§ 5891. Structured settlement factoring transactions
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 5891
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Added
- January 23, 2002 by Pub. L. 107–134
- Length
- 4 subsections · 897 words · about 4 min to read
- Defines
- 9 terms
- Cross-references
- cites 5; cited by 0 Code sections and 10 other regulations
- Regulations
- 1 issued under this section
There 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.
The term “applicable State court” means, with respect to any applicable State statute, a court of the State which enacted such statute.
In 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.
A qualified order shall be treated as dispositive for purposes of the exception under this subsection.
The term “structured settlement payment rights” means rights to receive payments under a structured settlement.
The term “structured settlement factoring transaction” means a transfer of structured settlement payment rights (including portions of structured settlement payments) made for consideration by means of sale, assignment, pledge, or other form of encumbrance or alienation for consideration.
The term “responsible administrative authority” means the administrative authority which had jurisdiction over the underlying action or proceeding which was resolved by means of the structured settlement.
The term “State” includes the Commonwealth of Puerto Rico and any possession of the United States.
If the applicable requirements of sections 72, 104(a)(1), 104(a)(2), 130, and 461(h) were satisfied at the time the structured settlement involving structured settlement payment rights was entered into, the subsequent occurrence of a structured settlement factoring transaction shall not affect the application of the provisions of such sections to the parties to the structured settlement (including an assignee under a qualified assignment under section 130) in any taxable year.
The provisions of section 3405 regarding withholding of tax shall not apply to the person making the payments in the event of a structured settlement factoring transaction.
(Added Pub. L. 107–134, title I, § 115(a), Jan. 23, 2002, 115 Stat. 2436.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
- applicable State court § 5891(b)(4)(A)
- applicable State statute § 5891(b)(3)
- factoring discount § 5891(c)(4)
- qualified order § 5891(b)(2)
- responsible administrative authority § 5891(c)(5)
- State § 5891(c)(6)
- structured settlement § 5891(c)(1)
- structured settlement factoring transaction § 5891(c)(3)(A)
- structured settlement payment rights § 5891(c)(2)
Regulations under this section
Treasury regulations (26 CFR) issued under § 5891
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 5 other sections
- § 130 Certain personal injury liability assignments
- § 104(a)(2) Compensation for injuries or sickness
- § 72 Annuities; certain proceeds of endowment and life insurance contracts
- § 461(h) General rule for taxable year of deduction
- § 3405 Special rules for pensions, annuities, and certain other deferred income
Cited in 10 regulations not issued under it
- § 157.6011-1 General requirement of return, statement, or list.
- § 157.6060-1 Reporting requirements for tax return preparers.
- § 157.6107-1 Tax return preparer must furnish copy of return or claim for refund to taxpayer and must retain a copy or record.
- § 157.6109-1 Tax return preparers furnishing identifying numbers for returns or claims for refund.
- § 157.6694-1 Section 6694 penalties applicable to tax return preparer.
- § 157.6694-2 Penalties for understatement due to an unreasonable position.
- § 157.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 157.6694-4 Extension of period of collection when preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 157.6695-1 Other assessable penalties with respect to the preparation of tax returns or claims for refund for other persons.
- § 157.6696-1 Claims for credit or refund by tax return preparers.
Amendment history
From the source credit and the official notes, newest first.
- Added by Pub. L. 107–134
Where it sits in the Code
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Statutory Notes and Related Subsidiaries
Effective Date
Pub. L. 107–134, title I, § 115(c), Jan. 23, 2002, 115 Stat. 2438, provided that:
“(1) In general.— The amendments made by this section [enacting this chapter] (other than the provisions of section 5891(d) of the Internal Revenue Code of 1986, as added by this section) shall apply to structured settlement factoring transactions (as defined in section 5891(c) of such Code (as so added)) entered into on or after the 30th day following the date of the enactment of this Act [Jan. 23, 2002].“(2) Clarification of existing law.— Section 5891(d) of such Code (as so added) shall apply to structured settlement factoring transactions (as defined in section 5891(c) of such Code (as so added)) entered into before, on, or after such 30th day.“(3) Transition rule.— In the case of a structured settlement factoring transaction entered into during the period beginning on the 30th day following the date of the enactment of this Act and ending on July 1, 2002, no tax shall be imposed under section 5891(a) of such Code if—“(A) the structured settlement payee is domiciled in a State (or possession of the United States) which has not enacted a statute providing that the structured settlement factoring transaction is ineffective unless the transaction has been approved by an order, judgment, or decree of a court (or where applicable, a responsible administrative authority) which finds that such transaction—“(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 structured settlement payee or is appropriate in light of a hardship faced by the payee; and“(B) the person acquiring the structured settlement payment rights discloses to the structured settlement payee in advance of the structured settlement factoring transaction the amounts and due dates of the payments to be transferred, the aggregate amount to be transferred, the consideration to be received by the structured settlement payee for the transferred payments, the discounted present value of the transferred payments (including the present value as determined in the manner described in section 7520 of such Code), and the expenses required under the terms of the structured settlement factoring transaction to be paid by the structured settlement payee or deducted from the proceeds of such transaction.”