New IRS Private Ruling Says Wrongful Life Settlement Income Tax Free
A recent IRS Private Letter Ruling 201950004 suggests relief is available in wrongful life cases.
What is a Wrongful Life Lawsuit?
Wrongful life action is a lawsuit brought by or on behalf of a child with birth defects, alleging that but for the doctor-defendant’s negligent advice, the parents would not have conceived the child, or if they had, they would have aborted the fetus to avoid the pain and suffering resulting from the child’s congenital defects. However, most jurisdictions reject these claims, according to US Legal. Parents in such situations are faced with substantial medical costs related to the care of children born with congenital disorders.
Where Wrongful Life Cases Exist, What Solutions Were Available?
Some tax relief was available through tax deferral mechanisms such as non qualified assignments or reinsurance structured settlements.
PLR Provides Clarity That Wrongful Life Settlement is Income Tax-Free
The Private Letter Ruling, or PLR, which I learned about at a meeting in Chicago yesterday (will not be published until December), provides clarity that these settlements are income tax free. The real world benefit of tax-free status, means that more money remains available for the child’s future care and opens the possibility of structured settlements with more favorable tax consequences. By using structured settlements in traditional medical malpractice cases, the funds grow income tax free and can be tailored to meet a child’s specific medical needs.
The PLR was requested on behalf of a specific client with a wrongful life claim by industry colleagues and the National Structured Settlements Trade Association. Had the claim been subject to taxes, much of the settlement would have been lost. Thanks to this ruling, the family will have the funds necessary to provide ongoing medical care for their child, according to a release dated October 16, 2019.
Keep this is mind if you are a medical malpractice lawyer in a jurisdiction that allows such claims.
