Qualified Settlement Funds (QSF)
Understanding Qualified Settlement Funds (QSF)
A Qualified Settlement Fund (QSF) is a financial arrangement established under Section 468B of the Internal Revenue Code, serving as a distinct legal entity designed to manage and distribute settlement funds in various types of legal disputes. These disputes often include mass torts, class actions, environmental claims, and even single-event personal injury cases. The primary function of a QSF is to accumulate and distribute settlement funds to claimants in an orderly, efficient, and tax-advantageous manner, benefiting both defendants and claimants.
Purpose and Structure of QSFs
- Flexibility for Plaintiff Lawyers: Plaintiff attorneys can control the timing of their tax obligations on fees. Many firms use QSFs in conjunction with attorney fee tax deferral strategies.
- Orderly Administration: A QSF provides an organized process for managing and distributing funds, particularly valuable in complex cases involving multiple claimants or large single-event cases. The fund administrator determines allocations and ensures compliance with all legal and regulatory requirements.
- Flexibility for Claimants: QSFs allow for the distribution of funds over time, rather than a lump-sum payment, which can aid in financial planning and provide tax advantages.
- Tax Deduction for Defendants: Defendants can take an immediate tax deduction upon contributing to a QSF, allowing them to resolve their liability without waiting for funds to be disbursed to claimants.