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Taxing Structured Settlements, Gregg D. Polsky, Brant J. Hellwig

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Congress has granted a tax subsidy to physically injured tort plaintiffs who enter into structured settlements. The subsidy allows these plaintiffs to exempt from the tax the investment yield imbedded within the structured settlement. The apparent purpose of the subsidy is to encourage physically injured plaintiffs to invest, rather than presently consume, their litigation recoveries. While the statutory subsidy by its terms is available only to physically injured tort plaintiffs, a growing structured settlement industry now contends that the same tax benefit of yield exemption is available to plaintiffs’ lawyers and non-physically injured tort plaintiffs under general, common-law tax principles. …