642 / What is a designated settlement fund?
A DSF must also meet the following requirements: (1) no amounts may be transferred to it except in the form of “qualified payments,” (2) it must be administered by persons, a majority of whom are independent from the defendant transferring the claim, (3) it must be established for the purpose of resolving and satisfying claims against the defendant (or related persons) for claims arising out of personal injury, death or property damage, (4) the defendant (and related persons) may not hold any beneficial interest in the income or corpus of the fund, and (5) the defendant must make an election to treat the fund as a DSF.2
A “qualified payment” is a payment made to a DSF pursuant to a court order other than payments that (1) may be transferred back to the defendant (or a related person) or (2) are transfers of stock or indebtedness of the defendant (or any related person).3 Once a defendant has made the election to treat a fund as a DSF, it is revocable only with the consent of the Secretary of the Treasury.4
1. IRC § 468B.
2. IRC § 468B(d)(2).