The United States definition of “structured settlement” for federal income taxation purposes, found in Internal Revenue Code Section 5891(c)(1) (26 U.S.C. ), is an "arrangement" that meets the following requirements:
- A structured settlement must be established by:
- A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue Code Section 104(a)(2) (26 U.S.C. ); or
- An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Internal Revenue Code Section 104(a)(1) (26 U.S.C. ); and
- The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal Revenue Code Section 130(c)(2) (26 U.S.C.) and must be payable by a person who:
- Is a party to the suit or agreement or to a workers' compensation claim; or
- By a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with Internal Revenue Code Section 130 (26 U.S.C. ).