§ 468B. Special rules for designated settlement funds
(b)
Taxation of designated settlement fund
(2)
Certain expenses allowed
For purposes of paragraph (1), gross income for any taxable year shall be reduced by the amount of any administrative costs (including State and local taxes) and other incidental expenses of the designated settlement fund (including legal, accounting, and actuarial expenses)—
(B)
which would be deductible under this chapter for purposes of determining the taxable income of a corporation.
No other deduction shall be allowed to the fund.
(3)
Transfers to the fund
In the case of any qualified payment made to the fund—
(4)
Tax in lieu of other taxation
The tax imposed by paragraph (1) shall be in lieu of any other taxation under this subtitle of income from assets in the designated settlement fund.
(c)
Deductions not allowed for transfer of insurance amounts
No deduction shall be allowable for any qualified payment by the taxpayer of any amounts received from the settlement of any insurance claim to the extent such amounts are excluded from the gross income of the taxpayer.
(d)
Definitions
For purposes of this section—
(1)
Qualified payment
The term “qualified payment” means any money or property which is transferred to any designated settlement fund pursuant to a court order, other than—
(2)
Designated settlement fund
The term “designated settlement fund” means any fund—
(A)
which is established pursuant to a court order and which extinguishes completely the taxpayer’s tort liability with respect to claims described in subparagraph (D),
(B)
with respect to which no amounts may be transferred other than in the form of qualified payments,
(D)
which is established for the principal purpose of resolving and satisfying present and future claims against the taxpayer (or any related person or formerly related person) arising out of personal injury, death, or property damage,
(E)
under the terms of which the taxpayer (or any related person) may not hold any beneficial interest in the income or corpus of the fund, and
An election under this section shall be made at such time and in such manner as the Secretary shall by regulation prescribe. Such an election, once made, may be revoked only with the consent of the Secretary.
(f)
Other funds
Except as provided in regulations, any payment in respect of a liability described in subsection (d)(2)(D) (and not described in subsection (e)) to a trust fund or escrow fund which is not a designated settlement fund shall not be treated as constituting economic performance.
(g)
Clarification of taxation of certain funds
(1)
In general
Except as provided in paragraph (2), nothing in any provision of law shall be construed as providing that an escrow account, settlement fund, or similar fund is not subject to current income tax. The Secretary shall prescribe regulations providing for the taxation of any such account or fund whether as a grantor trust or otherwise.
(2)
Exemption from tax for certain settlement funds
An escrow account, settlement fund, or similar fund shall be treated as beneficially owned by the United States and shall be exempt from taxation under this subtitle if—
(A)
it is established pursuant to a consent decree entered by a judge of a United States District Court,
(B)
it is created for the receipt of settlement payments as directed by a government entity for the sole purpose of resolving or satisfying one or more claims asserting liability under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
(C)
the authority and control over the expenditure of funds therein (including the expenditure of contributions thereto and any net earnings thereon) is with such government entity, and
(D)
upon termination, any remaining funds will be disbursed to such government entity for use in accordance with applicable law.
For purposes of this paragraph, the term “government entity” means the United States, any State or political subdivision thereof, the District of Columbia, any possession of the United States, and any agency or instrumentality of any of the foregoing.