J. JOSEPH CURRAN, JR.
NORMAN E, PARKER. JR.
CARMEN M. SHEPARD
Deputy Attorneys General
STATE OF MARYLAND
OFFICE OF THE ATTORNEY GENERAL
WRITER'S DIRECT DIAL No.
July 8, 1996
Frank Broccolina, Deputy State
Robert C. Murphy Courthouse
Annapolis, Maryland 21401
Dear Mr. Broccolina:
You have requested advice concerning the Internal Revenue Code (hereinafter "Code")
provisions requiring tax returns for income earned on "designated settlement funds." More
specifically, you ask whether the Code provisions and applicable regulations apply to moneys being
held by the clerks of court in special interest bearing accounts relative to pending litigation. For the
following reasons, I have concluded that the Code provisions and regulations do not apply to moneys
held by the clerks.
The United States Code provides special tax rules for income earned on designated settlement
funds. 26 U.S.C. §468B. This Code section defines "designated settlement fund" as:
(A) which is established pursuant to a court order and which
extinguishes completely the taxpayer's tort liability with respect to
claims described in subparagraph (D),
(B) with respect to which no amount may be transferred other than in
the form of qualified payments,
(C) which is administered by persons a majority of whom are
independent of the taxpayer,
(D) which is established for the principal purpose of resolving and
satisfying present and future claims against the taxpayer (or any
related person or formerly related person) arising out of personal
injury, death, or property damage,
(E) under the terms of which the taxpayer (or any related person) may
not hold any beneficial interest in the income or corpus of the fund,
(F) with respect to which an election is made under this section by the
200 Saint Paul Place.
Baltimore, Maryland 21202-2021
Telephone Numbers: (410) 576-6300 .D.C, Metro 470- 7534
Telephone for Deaf: (410) 576-6372