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Sell structured settlements
Structured settlement - information for buying or selling structured settlements : cash settlements and otherwise: structuredsettlementinfo.net
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Structured sale
A structured sale is a special type of installment sale pursuant to the Internal
Revenue Code.[1] Installment sales permit sellers to defer recognition of gains
on the sale of a business or real estate to the tax year in which the related
sale proceeds are received. Structured sales allow the seller of an asset to pay
taxes over time while having the payments guaranteed by a high credit quality
alternate obligor, who accepts assignment of the buyers periodic payment
obligation. Transactions can currently be done as small as $100,000.
In a structured sale, rather than the buyer paying the installments, the buyer
pays cash, some of which is used as consideration for a third party assignment
company to accept the payment obligation. The assignment company then purchases
an annuity from a life insurance company with high financial ratings from A. M.
Best. Case law and administrative precedents supporting substitution of
obligors.[2] In addition, a properly handled transaction will avoid issues with
constructive receipt and economic benefit.
While negotiating the installment payments, the seller is free to design payment
streams with a great deal of flexibility. The seller recognizes capital gain in
each year an installment payment is received. Interest is imputed and taxed
annually, even in years d-ring the contract where no installment payments are
received. Taxation is the same as if the buyer were making installment payments
directly.
Structured sales are an alternative to a section 1031 exchange, which defers
recognition of capital gain, but forces the seller to continue holding some form
of property. Structured sales work well for sellers who want to create a
continuing stream of income without management worries. Retiring business owners
and downsizing homeowners are examples of sellers who can benefit.
The structured sale must be documented, and money must be handled in such a way
that the ultimate recipient is not treated as having constructive received the
payment prior to the time it is actually paid. For the buyer, there is no
difference from a traditional cash-and-title-now deal, except for additional
paperwork. Because of tax advantages to the seller, structuring the sale might,
however, make the buyer's offer more attractive. Because the buyer has paid in
full, the buyer gets full title at time of closing.
There are no direct fees to the buyer or seller to employ the structured sale
strategy. The structured settlement specialist who implements the transaction is
paid directly by the life insurance company that writes the annuity.
The internal rate of return is comparable to long term high quality debt
instruments.
Allstate Life was the originator of the structured sale concept and until
recently was the only structured settlement annuity company whose product was
available for the structured sale transaction. Prudential has begun to use its
non-qualified assignment product on a limited basis. By mid 2007, Aviva Life may
be in the market as well.
Notes
1. ^ 26 U.S.C. § 453.
2. ^ See IRS Revenue R-ling 82-122, 1982-1 C.B. 80 (Jan. 1, 1982) (amplifying
IRS Rev. R-l. 75-457); Wynne v. Commissioner, 47 B.T.A. 731 (1942); and
Cunningham v. Commissioner, 44 T.C. 103 (1965).
Structured settlement - information for buying or selling structured settlements : cash settlements and otherwise: structuredsettlementinfo.net
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