The Internal Revenue Service has published a final version of regulations that discourage the sale of structured settlement annuities.[@@]

The regulations impose a 40% excise tax on the proceeds from sales of the annuities.

Structured settlement annuities are special long-term or lifetime annuities that lawsuit defendants often use to pay settlements to people who have suffered serious physical injuries. Congress has provided special tax breaks to encourage use of structured settlements, to protect victims from the temptation to squander large sums of cash that are supposed to help the victims pay for medical care and support services for decades.

The life insurers that write the annuities have objected in recent years to an influx of finance firms that buy the settlement annuity income streams and help the victims turn the streams into lump sums of cash.

The finance firms say they are giving the settlement recipients the flexibility to adapt to changing needs without having to return to court to renegotiate the settlement agreements.

The insurers say the settlement annuity purchases are jeopardizing the special tax status of the annuities and stripping injured men, women and children of the legal shields that were supposed to protect their financial interests.

The IRS published temporary and proposed versions of the excise tax regulations in February 2003.

Only one party submitted formal comments about the temporary regulations, according to a discussion of the final regulation that appears today in the Federal Register.

“The writer commended the issuance of the temporary and proposed regulations and urged that they be finalized without change,” Mark Matthews, the IRS deputy commissioner for services and enforcement, and Gregory Jenner, acting assistant Treasury secretary, write in the discussion of the final regulations.

The government has adopted the proposed regulations without making any substantive changes, Matthews and Jenner write.

A copy of the final regulations is on the Web at http://a257.g.akamaitech.net/7/257/2422/06jun20041800/edocket.access.gpo.gov/2004/pdf/04-15124.pdf