BP is doing everything in its power to renege on the Deepwater Horizon settlement. Fortunately, the Court continues to deny BP’s efforts. Last month, the U.S. Court of Appeals rejected BP’s bid to halt payments to certain businesses affected by the oil spill. That decision brings claimants one step closer to recovering their economic losses.
Unfortunately, if you expect to receive a recovery from the Deepwater Horizon settlement, you may be in for something you didn’t bargain for—taxes. There were many different types of claims that arose, including illness, injury, economic loss, and property damage. If you receive a settlement, you may not have the losses and deductions to stack against it, resulting in a potentially hefty tax bill. That’s where deferred compensation comes in, but if you choose to defer, make sure you follow the procedure outlined by the Court.
Deferred compensation is a big business for a reason—business executives, athletes, and other high-income earners recognize that tax planning is a foundation for wealth management.
The Court has set up a process for those who wish to take advantage of tax deferrals in the Deepwater Horizon settlement. Failure to plan early enough and to follow appropriate procedures set forth in the claims process can adversely affect the ability to defer your tax.
For those of you whose businesses were affected by the oil spill, you not only lost income for yourself and your employees, but you also may have lost important opportunities to fund your retirement through traditional qualified retirement plans, IRAs and 401(k)s. If handled properly, the settlement award can be used to make up some of that missed long-term income, albeit with certain restrictions on access and flexibility.
Claimants in the Deepwater Horizon Settlement have a one-time opportunity to receive their settlement awards via a tax deferral arrangement. Settlement funds placed in a tax deferral can grow tax-free and provide you with the security of regular, guaranteed, long-term income.
Make Sure You Follow the Procedure
All those involved in the settlement—claimants, attorneys, and financial advisors—should take note of the specifically outlined procedure for pursuing a structured settlement arrangement. Failure to follow the procedure can adversely affect the claimant’s eligibility to receive a tax deferral.
Contact a court-approved broker: Under the terms of the settlement agreement, if a claimant wishes to place all or a part of their award in a tax deferral, they must conduct this transaction with a court-approved structured settlement broker. A list of court-approved brokers can be found on the here.
Complete Attachment C: Once you’ve spoken with a court-approved broker, you must complete and sign Attachment C, which will then be submitted to the Claims Administrator along with your release on your behalf by the broker. A copy of Attachment C can be downloaded here.
It is important to remember that your release and Attachment C must be submitted (by the broker) to the Claims Administrator by the deadline stated on your Eligibility Notice.
If you are interested in pursuing a tax deferral, remember:
Your Release and Attachment C must be submitted (by your broker) to the Claims Administrator by the deadline stated on your Eligibility Notice.
The Release and Attachment C must be submitted at the same time. If you submit the Release (including all requested information and documentation) without Attachment C, you will not be eligible for a structured settlement.
If you accept the award amount on the Deepwater Horizon Portal or accept the award amount by calling the claimant communications center without indicating that you are electing the structured settlement option, you will not be eligible for the structured settlement option.
Attorneys for BP claimants might also be interested in the tax advantages of attorney fee deferrals. Per the settlement agreement, attorneys who wish to pursue this must do so using an offshore assignment company. Your court-approved broker should be able to point you in the direction of a company that can meet your needs.
For more information regarding the Deepwater Horizon Settlement, visit www.deepwaterhorizoneconomicsettlement.com
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).