643 / What is a qualified settlement fund?
(1) the QSF must be established pursuant to a governmental order (such as a court order or order of a state or the federal government) and must be subject to the continuing jurisdiction of that government entity,(2) it must be established to resolve a claim (whether contested or uncontested) arising under (a) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, (b) arising out of a tort, breach of contract, or violation of law or (c) designated by the Commissioner in a revenue ruling or revenue procedure, and
(3) the fund must be a trust under state law, or the assets must otherwise be segregated from other assets of the defendant-transferor (and related persons).1
QSFs are also subject to certain limitations on the types of litigation claims they can be used to satisfy. For example, if the liability arises under the workers’ compensation act or a self-insured health plan, it may not be settled through a QSF.2
1. Treas. Reg. § 1.468B-1.
2. Treas. Reg. § 1.468B-1(g).