New Tax Law that Raised Questions
Concerning Structuring Attorneys’ Fees
Clarified with Positive Results
The new Section 409A of the Internal Revenue Code (included
in the recently passed American Jobs Creation Act of 2004) brought many concerns
of significant changes to the tax treatment of structured attorneys’ fees.
On December 20, 2004 the Department of Treasury (“Treasury”)
and Internal Revenue Service issued comprehensive guidance interpreting new
Section 409A. The guidance in Notice 2005-1 excludes most service provider arrangements
from the scope of Section 409A. The Notice states:
Q-8 To Which Service Providers Does § 409A Apply?
A-8…Section 409A…DOES NOT APPLY
to arrangements between a service provider and a service recipient if (a)
the service provider is actively engaged in the trade or business of providing
substantial services, other than (I) as an employee or (II) as a director
of a corporation; and (b) the service provider provides such services to
two or more service recipients to which the service provider is not related
and that are not related to one another.
Creative Capital has already received notice from one of the
largest life insurance companies with whom it conducts business stating that
they have lifted the moratorium on structured settlements for attorneys’
fees. This is effective immediately. We are ready to assist you in structuring
any fees that you have pending.