---
kind: "section"
citation: "26 U.S.C. § 468B"
title: "26"
title_heading: "Internal Revenue Code"
number: "468B"
heading: "Special rules for designated settlement funds"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/468B"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter E — Accounting Periods and Methods of Accounting"
  - "Part II — Methods of Accounting"
  - "Subpart C — Taxable Year for Which Deductions Taken"
---

# §468B. Special rules for designated settlement funds

- (a) **In general—** For purposes of [section 461(h)](/usc/26/461.md?p=h), economic performance shall be deemed to occur as qualified payments are made by the [taxpayer](/usc/26/1313.md?p=b) to a designated settlement [fund](/usc/26/851.md?p=g-2).
- (b) **Taxation of designated settlement fund—**
  - (1) **In general—** There is imposed on the gross income of any designated settlement [fund](/usc/26/851.md?p=g-2) for any taxable year a tax at a rate equal to the maximum rate in effect for such taxable year under [section 1(e)](/usc/26/1.md?p=e).
  - (2) **Certain expenses allowed—** For purposes of [paragraph (1)](#b-1), gross income for any taxable year shall be reduced by the amount of any administrative costs (including State and local taxes) and other incidental expenses of the designated settlement [fund](/usc/26/851.md?p=g-2) (including legal, accounting, and actuarial expenses)—
    - (A) which are incurred in connection with the operation of the [fund](/usc/26/851.md?p=g-2), and
    - (B) which would be deductible under this chapter for purposes of determining the [taxable income](/usc/26/63.md?p=a) of a corporation.

    No other deduction shall be allowed to the [fund](/usc/26/851.md?p=g-2).

  - (3) **Transfers to the fund—** In the case of any qualified payment made to the [fund](/usc/26/851.md?p=g-2)—
    - (A) the amount of such payment shall not be treated as income of the designated settlement [fund](/usc/26/851.md?p=g-2),
    - (B) the basis of the [fund](/usc/26/851.md?p=g-2) in any [property](/usc/26/317.md?p=a) which constitutes a qualified payment shall be equal to the fair market [value](/usc/26/851.md?p=c-4) of such [property](/usc/26/317.md?p=a) at the time of payment, and
    - (C) the [fund](/usc/26/851.md?p=g-2) shall be treated as the owner of the [property](/usc/26/317.md?p=a) in the [fund](/usc/26/851.md?p=g-2) (and any earnings thereon).
  - (4) **Tax in lieu of other taxation—** The tax imposed by [paragraph (1)](#b-1) shall be in lieu of any other taxation under this subtitle of income from assets in the designated settlement [fund](/usc/26/851.md?p=g-2).
  - (5) **Coordination with subtitle F—** For purposes of subtitle F—
    - (A) a designated settlement [fund](/usc/26/851.md?p=g-2) shall be treated as a corporation, and
    - (B) any tax imposed by this subsection shall be treated as a tax imposed by section 11.
- (c) **Deductions not allowed for transfer of insurance amounts—** No deduction shall be allowable for any qualified payment by the [taxpayer](/usc/26/1313.md?p=b) of any amounts received from the settlement of any insurance claim to the extent such amounts are excluded from the gross income of the [taxpayer](/usc/26/1313.md?p=b).
- (d) **Definitions—** For purposes of this section—
  - (1) **Qualified payment—** The term “qualified payment” means any money or [property](/usc/26/317.md?p=a) which is transferred to any designated settlement [fund](/usc/26/851.md?p=g-2) pursuant to a court order, other than—
    - (A) any amount which may be transferred from the [fund](/usc/26/851.md?p=g-2) to the [taxpayer](/usc/26/1313.md?p=b) (or any [related person](/usc/26/864.md?p=d-4)), or
    - (B) the transfer of any [stock](/usc/26/1504.md?p=a-4) or indebtedness of the [taxpayer](/usc/26/1313.md?p=b) (or any [related person](/usc/26/864.md?p=d-4)).
  - (2) **Designated settlement fund—** The term “designated settlement [fund](/usc/26/851.md?p=g-2)” means any [fund](/usc/26/851.md?p=g-2)—
    - (A) which is established pursuant to a court order and which extinguishes completely the [taxpayer](/usc/26/1313.md?p=b)’s tort liability with respect to claims described in [subparagraph (D)](#d-2-D),
    - (B) with respect to which no amounts 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](/usc/26/1313.md?p=b),
    - (D) which is established for the principal purpose of resolving and satisfying present and future claims against the [taxpayer](/usc/26/1313.md?p=b) (or any [related person](/usc/26/864.md?p=d-4) or formerly [related person](/usc/26/864.md?p=d-4)) arising out of personal injury, death, or [property](/usc/26/317.md?p=a) damage,
    - (E) under the terms of which the [taxpayer](/usc/26/1313.md?p=b) (or any [related person](/usc/26/864.md?p=d-4)) may not hold any beneficial [interest](/usc/26/856.md?p=f-1) in the income or corpus of the [fund](/usc/26/851.md?p=g-2), and
    - (F) with respect to which an election is made under this section by the [taxpayer](/usc/26/1313.md?p=b).

    An election under this section shall be made at such time and in such manner as the Secretary shall by regulation prescribe. Such an election, once made, may be revoked only with the consent of the Secretary.

  - (3) **Related person—** The term “[related person](/usc/26/864.md?p=d-4)” means a person related to the [taxpayer](/usc/26/1313.md?p=b) within the meaning of [section 267(b)](/usc/26/267.md?p=b).
- (e) **Nonapplicability of section—** This section (other than [subsection (g)](#g)) shall not apply with respect to any liability of the [taxpayer](/usc/26/1313.md?p=b) arising under any workers’ compensation Act or any contested liability of the [taxpayer](/usc/26/1313.md?p=b) within the meaning of [section 461(f)](/usc/26/461.md?p=f).
- (f) **Other funds—** Except as provided in regulations, any payment in respect of a liability described in [subsection (d)(2)(D)](#d-2-D) (and not described in [subsection (e)](#e)) to a trust [fund](/usc/26/851.md?p=g-2) or escrow [fund](/usc/26/851.md?p=g-2) which is not a designated settlement [fund](/usc/26/851.md?p=g-2) shall not be treated as constituting economic performance.
- (g) **Clarification of taxation of certain funds—**
  - (1) **In general—** Except as provided in [paragraph (2)](#g-2), nothing in any provision of law shall be construed as providing that an escrow account, settlement [fund](/usc/26/851.md?p=g-2), or similar [fund](/usc/26/851.md?p=g-2) is not subject to current income tax. The Secretary shall prescribe regulations providing for the taxation of any such account or [fund](/usc/26/851.md?p=g-2) whether as a grantor trust or otherwise.
  - (2) **Exemption from tax for certain settlement funds—** An escrow account, settlement [fund](/usc/26/851.md?p=g-2), or similar [fund](/usc/26/851.md?p=g-2) shall be treated as beneficially owned by the [United States](/usc/26/993.md?p=g) and shall be exempt from taxation under this subtitle if—
    - (A) it is established pursuant to a consent decree entered by a judge of a [United States](/usc/26/993.md?p=g) District Court,
    - (B) it is created for the receipt of settlement payments as directed by a government entity for the sole purpose of resolving or satisfying one or more claims asserting liability under the Comprehensive Environmental Response, [Compensation](/usc/26/414.md?p=n-5-C-iii), and Liability Act of 1980,
    - (C) the authority and [control](/usc/26/368.md?p=a-2-H-i) over the expenditure of [funds](/usc/26/851.md?p=g-2) therein (including the expenditure of contributions thereto and any net earnings thereon) is with such government entity, and
    - (D) upon termination, any remaining [funds](/usc/26/851.md?p=g-2) will be disbursed to such government entity for use in accordance with applicable law.

    For purposes of this paragraph, the term “government entity” means the [United States](/usc/26/993.md?p=g), any State or political subdivision thereof, the District of Columbia, any possession of the [United States](/usc/26/993.md?p=g), and any agency or instrumentality of any of the foregoing.


## Source credit

(Added Pub. L. 99–514, title XVIII, § 1807(a)(7)(A), Oct. 22, 1986, 100 Stat. 2814; amended Pub. L. 100–647, title I, § 1018(f)(1), (2), (4), (5)(A), Nov. 10, 1988, 102 Stat. 3582; Pub. L. 101–508, title XI, § 11702(e)(1), Nov. 5, 1990, 104 Stat. 1388–515; Pub. L. 109–222, title II, § 201(a), May 17, 2006, 120 Stat. 347; Pub. L. 109–432, div. A, title IV, § 409(a), Dec. 20, 2006, 120 Stat. 2963.)

## Notes

### Editorial Notes

### References in Text

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, referred to in subsec. (g)(2)(B), is Pub. L. 96–510, Dec. 11, 1980, 94 Stat. 2767, which is classified principally to chapter 103 (§ 9601 et seq.) of Title 42, The Public Health and Welfare. For complete classification of this Act to the Code, see Short Title note set out under section 9601 of Title 42 and Tables.

### Amendments

2006—Subsec. (g). Pub. L. 109–222 reenacted heading without change and amended text of subsec. (g) generally. Prior to amendment, text read as follows: “Nothing in any provision of law shall be construed as providing that an escrow account, settlement fund, or similar fund is not subject to current income tax. The Secretary shall prescribe regulations providing for the taxation of any such account or fund whether as a grantor trust or otherwise.”

Subsec. (g)(3). Pub. L. 109–432 struck out heading and text of par. (3). Text read as follows: “Paragraph (2) shall not apply to accounts and funds established after December 31, 2010.”

1990—Subsec. (e). Pub. L. 101–508 substituted “This section (other than subsection (g))” for “This section”.

1988—Subsec. (b)(2). Pub. L. 100–647, § 1018(f)(4)(B), substituted “No other” for “no other” in concluding provisions.

Subsec. (b)(2)(B). Pub. L. 100–647, § 1018(f)(4)(A), substituted “a corporation.” for “the corporation,”.

Subsec. (d)(1)(A). Pub. L. 100–647, § 1018(f)(1), inserted “(or any related person)” after “taxpayer”.

Subsec. (d)(2)(A). Pub. L. 100–647, § 1018(f)(2), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “which is established pursuant to a court order,”.

Subsec. (d)(2)(E). Pub. L. 100–647, § 1018(f)(1), inserted “(or any related person)” after “taxpayer”.

Subsec. (g). Pub. L. 100–647, § 1018(f)(5)(A), added subsec. (g).

### Statutory Notes and Related Subsidiaries

### Effective Date of 2006 Amendment

Pub. L. 109–432, div. A, title IV, § 409(b), Dec. 20, 2006, 120 Stat. 2963, provided that: “The amendment made by this section [amending this section] shall take effect as if included in section 201 of the Tax Increase Prevention and Reconciliation Act of 2005 [Pub. L. 109–222].”

Pub. L. 109–222, title II, § 201(b), May 17, 2006, 120 Stat. 348, provided that: “The amendment made by subsection (a) [amending this section] shall apply to accounts and funds established after the date of the enactment of this Act [May 17, 2006].”

### Effective Date of 1990 Amendment

Amendment by Pub. L. 101–508 effective as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 11702(j) of Pub. L. 101–508, set out as a note under section 59 of this title.

### Effective Date of 1988 Amendment

Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

### Effective Date

Section effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as an Effective Date of 1986 Amendment note under section 48 of this title.

### Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.

### Special Rule for Taxpayer in Bankruptcy Reorganization

Pub. L. 99–514, title XVIII, § 1807(a)(7)(C), Oct. 22, 1986, 100 Stat. 2816, as amended by Pub. L. 100–647, title I, § 1018(f)(3), Nov. 10, 1988, 102 Stat. 3582, provided that: “In the case of any settlement fund which is established for claimants against a corporation which filed a petition for reorganization under chapter 11 of title 11, United States Code, on August 26, 1982, and which filed with a United States district court a first amended and restated plan of reorganization before March 1, 1986— any portion of such fund which is established pursuant to a court order and with qualified payments, which meets the requirements of subparagraphs (C) and (D) of section 468B(d)(2) of the Internal Revenue Code of 1954 [now 1986] (as added by this paragraph), and with respect to which an election is made under subparagraph (F) thereof, shall be treated as a designated settlement fund for purposes of section 468B of such Code, such corporation (or any successor thereof) shall be liable for the tax imposed by section 468B of such Code on such portion of the fund (and the fund shall not be liable for such tax), such tax shall be deductible by the corporation, and the rate of tax under section 468B of such Code for any taxable year shall be equal to 15 percent, and any transaction by any portion of the fund not described in clause (i) shall be treated as a transaction made by the corporation.”

### Clarification of Law With Respect to Certain Funds

Pub. L. 99–514, title XVIII, § 1807(a)(7)(D), Oct. 22, 1986, 100 Stat. 2816, provided that nothing in any provision of law be construed as providing that an escrow account, settlement fund, or similar fund established after Aug. 16, 1986, not be subject to current income tax and that if contributions to such account or fund are not deductible then the account or fund be taxed as a grantor trust, prior to repeal by Pub. L. 100–647, title I, § 1018(f)(5)(B), Nov. 10, 1988, 102 Stat. 3582.