Qualified Settlement Fund (QSF) Creation - List of Key Points Lawyers Need to Know
Published
Aug 29, 2024
Updated
May 20, 2025
1. Court Approval is Not Mandatory
- Court approval to establish a Qualified Settlement Fund is NOT required.
- IRC § 468B-1(c)(1) allows non-court “governmental authorities” to approve its creation.
2. Governmental Authority Approval
- QSFs can be approved by various government entities, including federal, state, or local agencies.
- The approving authority oversees QSF administration to ensure compliance with the terms of the judicial award and associated regulations.
3. IRS Involvement in Approval Process
- The IRS plays a role in supervising QSFs through tax regulations, rules, and EIN issuance.
- The QSF administrator must ensure compliance with IRS requirements for QSF establishment and administration.
4. Establishing
- Parties must petition a governmental authority to create and approve establishment.
- The authority reviews the proposed trust agreement for qualification requirement compliance.
5. Advantages Beyond Tax Benefits
- QSFs provide tax benefits for both the plaintiff and defendant, offer timing flexibility, and reduce administrative costs and burdens.
- They also facilitate the satisfaction of liens and the resolution of any secondary issues or disputes.
6. Streamlined Creation Options
- Establishment methods via courts can be time-consuming and costly.
- Platforms such as QSF 360 offer faster, more cost-effective solutions, along with skilled and qualified settlement fund administration.
7. IRS Filing Requirements
- The QSF administrator must file annually Form 1120-SF (U.S. Income Tax Return for Settlement Funds).
- Form 1041 (U.S. Income Tax Return for Estates and Trusts) is not applicable in this case.
8. Life Cycle
- §468B funds operate on a calendar-year basis and come into existence upon approval by the governmental authority.
- The fund administrator must ensure that the fund meets all IRS requirements, regardless of whether the funding has been made.
This listicle offers a summary overview. Always consult with experienced QSF administration professionals for specific guidance on Qualified Settlement Funds administration.
