Qualified Settlement Funds

irs.gov -

Qualified Settlement Funds

The trustee of a designated or qualified settlement fund (QSF) generally must file Form 1120-SF, U.S. Income Tax Return for Settlement Funds, instead of Form 1041.

Special election. If a QSF has only one transferor, the transferor may elect to treat the QSF as a grantor type trust.

To make the grantor trust election, the transferor must attach an election statement to a timely filed Form 1041, including extensions, that the administrator files for the QSF for the tax year in which the settlement fund is established. If Form 1041 is not filed because Optional Method 1 or 2 was chosen, attach the election statement to a timely filed income tax return, including extensions, of the transferor for the tax year in which the settlement fund is established.

Election statement.

The election statement may be made separately or, if filed with Form 1041, on the attachment described under Grantor Type Trusts, later. At the top of the election statement, write “Section 1.468B-1(k) Election” and include the transferor's:

  • Name,

  • Address,

  • TIN, and

  • A statement that he or she will treat the qualified settlement fund as a grantor type trust.