Qualified Settlement Fund (QSF) Creation - List of Key Points Lawyers Need to Know

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.

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