The legislative intent behind the tax subsidy that Congress extended to periodic payment arrangements in 1982 was to entice the recipients into opting for a structured settlement payment plan that is more likely to ensure long term well-being for the victim.

The tax code was then amended to discourage structured settlement recipients from transferring/selling (a.k.a. discounting or factoring) of their right to a structured settlement periodic payment plan in lieu of a lump sum amount. The aforementioned amendments were designed to impose a significantly large excise tax that makes structured settlement revenue streams factoring transactions less rewarding.

The law does allow, however, for a limited exception for cases involving truly genuine and court-approved financial hardships. This exception is intended to cover only a limited number of cases in which a structured settlement recipient has run into a truly extraordinary and significant hardship that could not have been anticipated a priori.

If it can be demonstrated to the satisfaction of a court that an imminent hardship has actually arisen, and if the transfer of structured settlement payment rights being so requested falls within the applicable Federal and State laws, it is possible that aforementioned excise tax would be waived.

It must be noted that the said hardship exception is not intended to override any applicable Federal and/or State laws that may otherwise prohibit or restrict any such transfer of victim's payment rights to others. Most State laws, for example, currently prohibit the factoring or transfer of workers' compensation payments to others.

In almost all cases, you would probably be pleading your request for the hardship exception to the same court that had originally approved your structured settlement -except for certain limited instances in which an administrative authority had originally adjudicated on a claim.

Simply put, in order for a structured settlement factoring transaction to be exempt from the aforementioned excise tax, the following conditions have to be (generally) met:

• Transfer of structured settlement payment rights in questions is permissible under all applicable Federal and State laws,
  
• Said transfer must also be either (a) court-approved, or (b) when appropriate, be approved by an administrative authority,
  
• It must be demonstrated that there is a clear evidence of the recipient having experienced an extraordinary, unanticipated, and imminent need

In other words, it must be clearly demonstrated by the structured settlement recipient (or his/her spouse or dependents) that they have experienced unanticipated and significant hardships that would fully justify any such transfers.

Please note that the above summarization is only an approximation of what the law requires. Speak with an attorney and a structured settlement specialist to evaluate the specifics of your case, and to determine whether or not you would qualify for exemption from the aforementioned excise tax.