Typically, a person who elects to receive cash for a structured settlement – that is, selling their structured settlement to CBC – does not incur tax liability on the sale. The settlement was non-taxable when you received it, and remains non-taxable when you sell it in exchange for a lump sum.
In 1982, the U.S. Congress enacted laws that would provide a structured settlement tax incentive for people who won large court settlements to accept payments over time rather than taking the settlement lump sum. The reason was that having a guaranteed, regular income over time would be more beneficial to the recipient. Afterwards, there were amendments to the structured settlement tax code designed to discourage structured settlement sales by imposing a substantial excise tax on such a transaction. This structured settlement tax could be waived, however, if financial hardship could be demonstrated to a judge in a court of law.
In 2002, federal legislation was passed that allowed the transfer of structured settlements to retain their tax-exempt status when transferred to a third party, i.e. structured settlement buyers and funding companies. Be aware, however, that although your lump sum payment for a structured settlement is non-taxable, should you invest it, any returns will be subject to the current capital gains tax.
For more information regarding a potential structured settlement tax, and legal impact of such a transaction, you should consult with a legal and/or tax professional.
CBC Settlement Funding can provide you with a settlement cash advance for all or part of your structured settlement provided you have the legal right to receive these payments and are legally competent to enter into a contract. We do not however offer tax advice, and encourage clients to discuss these issues with a qualified tax attorney or CPA.