What is a Settlement Fund (under IRC Sec 468B)? | IRS Definition of a Settlement Fund (under IRC Sec 468B)
A settlement fund is a fund that’s designed to protect assets that are being distributed during a settlement until it can be disbursed. Consider a legal settlement that needs to disburse $20 million to 2,000,000 individuals. The fund will be able to certify that the assets are there to be disbursed, and will make it easier for the funds to be properly disbursed to those who need it. A third party will be responsible for making sure that the individuals are contacted and that the funds are distributed properly.
These qualified settlement funds require separate EINs (also known as tax identification numbers) because they are being held by a separate entity than the originating company or individual. In fact, the originator no longer has control over these funds. These funds essentially belong to the people who are a part of the settlement, they just haven’t been disbursed yet.