IRS written determination 202624002

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 202624002
Release Date: 6/12/2026
Index Number: 468B.02-00, 115.06-01

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:ITA:B06
PLR-116022-25
Date:
March 17, 2026

LEGEND

Activities =
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Bankruptcy Chapter =
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Court = --------------------------------------------------------------------------
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Date 1 =
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Date 2 =
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Date 3 =
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Defendants =
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Dollar Amount =
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F =
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Guidelines =
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Plan =
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Product Z =
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Related Projects =
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State =
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Trust = -----------------------------------------------------------

Trustee =
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Dear -------------:

This letter responds to the letter dated August 27, 2025, submitted on behalf of Trust,
requesting certain rulings concerning the application of various sections of the Internal
Revenue Code and the Income Tax Regulations to Trust. Specifically, you requested
the following rulings:

1. Trust is a qualified settlement fund under § 1.468B-1(c);

2. Trust may exclude under § 1.468B-2(b)(1) from its modified gross income the
assets received or to be received; and

3. The income earned by Trust will be excluded from its gross income under § 115.

FACTS

Prior to Date 1, the Defendants were defendants in numerous court cases alleging a
variety of claims regarding the Defendants’ Activities of Product Z. The claims included
statutory and/or common law claims for public nuisance, violations of consumer
protection or unfair trade practices laws, racketeering, fraud and negligence.
Collectively, these claims are referred to as the Liabilities. The plaintiffs included the
beneficiaries and local governments. The beneficiaries consist only of states of the
United States, the District of Columbia, and the governments of a United States
possession, within the meaning of § 115 (such beneficiaries collectively, the
Beneficiaries). The local governments are political subdivisions of states of the United
States, within the meaning of § 115 (such local governments collectively, the Local
Governments).

On Date 1, the Defendants filed voluntary petitions for relief under Bankruptcy Chapter
of the United States Bankruptcy Code in the Court. On Date 2, the Court approved the
Defendants’ Plan, which required the formation of Trust. The Plan reflected settlements
with, or on behalf of, the Beneficiaries and Local Governments. Trust resolved the
Liabilities of the Defendants with respect to the Beneficiaries’ and Local Governments’
claims against the Defendants for their Activities regarding Product Z.

Trust is a State statutory trust that was formed pursuant to the Plan and remains subject
to the continuing jurisdiction of the Court. The trustee of Trust is Trustee.

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On Date 3, the Defendants transferred Dollar Amount to Trust (the Transfer of Funds)
pursuant to the Plan. Trust will not receive any other funding.

Under the Plan, Trust will devote its entire operation to abating the F created by the
Defendants’ Activities regarding Product Z, a public health crisis, or funding Related
Projects in accordance with the distribution procedures in the trust agreement for Trust
that benefit the Beneficiaries and their citizens or residents. Under the Plan and in
accordance with numerous state/local abatement sharing agreements, many of the
Beneficiaries are required to distribute, or direct the distribution of, a portion of the
amounts they receive from Trust to Local Governments for the Local Governments’ use
in the abatement of the F.

Trust may also hold, manage, and invest assets of Trust prior to their distribution to
Beneficiaries. Other than payment for goods and services necessary for Trust to
perform the task of abating the F and administering Trust for such purpose, none of
Trust’s income will revert to a private party. Under the terms of the trust agreement for
Trust, Trustee may invest and reinvest the principal and income of Trust. The Transfer
of Funds does not represent dividends on stock of a transferor (or related person),
interest on debt of a transferor (or a related person), or payments in compensation for
late or delayed transfers.

Distributions from Trust may only be made in accordance with the distribution
procedures in the trust agreement. The Beneficiaries must use the funds distributed
from Trust on approved abatement of the F, as defined in the Guidelines. The approved
items for the abatement of the F were created by representatives of the Beneficiaries
after careful research, consideration, and deliberation. The representatives of the
Beneficiaries intended that the approved items would be effective at combating the F.

Upon dissolution, any assets remaining in Trust will be distributed only to the
Beneficiaries or the Local Governments in accordance with the trust agreement for
Trust, which includes provisions for distributions to Local Governments in accordance
with the state/local abatement sharing agreements. None of Trust’s assets will be
distributed or revert to any entity whose income is not excludible from gross income
under § 115. Under the Plan, neither the Defendants nor the reorganized Defendants
retain any ownership or residual interest in the assets of Trust, any proceeds from those
assets, or investment income from those assets.

RULINGS REQUESTED

1. Trust is a qualified settlement fund under § 1.468B-1(c).

2. Trust may exclude under § 1.468B-2(b)(1) from its modified gross income the
assets received or to be received; and

3. The income earned by Trust will be excluded from its gross income under § 115.

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LAW & ANALYSIS

1. Trust’s Status as a Qualified Settlement Fund under § 1.468B-1(c)

Section 468B(g)(1) provides that “[n]othing 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.” § 468B(g)(1) authorizes the issuance of regulations providing for
the taxation of any such account or fund whether as a grantor trust or otherwise.
Sections 1.468B-1 through 1.468B-5 regarding qualified settlement funds were issued
pursuant to § 468B(g).

Section 1.468B-1(a) provides that a qualified settlement fund is a fund, account, or trust
that satisfies the three requirements of § 1.468B-1(c). First, § 1.468B-1(c)(1) requires
that the fund, account, or trust is established pursuant to an order of, or it is approved
by, the United States, any state (including the District of Columbia), territory,
possession, or political subdivision thereof, or any agency or instrumentality (including a
court of law) of any of the foregoing and is subject to the continuing jurisdiction of that
governmental authority. Second, § 1.468B-1(c)(2) requires that the fund, account, or
trust is established to resolve or satisfy one or more contested or uncontested claims
that have resulted or may result from an event (or related series of events) that has
occurred and that has given rise to at least one claim asserting liability (i) under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980; (ii)
arising out of a tort, breach of contract, or violation of law; or (iii) designated by the
Commissioner in a revenue ruling or revenue procedure. Third, § 1.468B-1(c)(3)
provides that the fund, account, or trust must be a trust under applicable state law, or its
assets must be otherwise segregated from other assets of the transferor (and related
persons).

Based on the facts represented by Trust, the three requirements of § 1.468B-1(c) are
satisfied, and as such, Trust is a qualified settlement fund for federal income tax
purposes. First, the Court entered an order approving the establishment of Trust, and
Trust remains subject to the continuing jurisdiction of the Court. See § 1.468B-1(c)(1).
Second, Trust was established to resolve or satisfy claims of the Beneficiaries and
Local Governments that arose from the Defendants’ violations of statutory and/or
common law and for the Activities regarding Product Z that have given rise to the
Liabilities. See § 1.468B-1(c)(2). Third, Trust was organized as a trust under applicable
state law. See § 1.468B-1(c)(3).

2. Transferred Funds Excluded from Modified Gross Income under § 1.468B-2(b)(1)

Section 61(a) provides that gross income means all income from whatever source
derived.

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Section 1.468B-2(a) provides that a qualified settlement fund is a United States person
and is subject to tax on its modified gross income for any taxable year at a rate equal to
the maximum rate in effect for that taxable year under § 1(e).

Section 1.468B-2(b) provides that the term modified gross income means “gross
income,” as defined in § 61, computed with certain modifications.

Under § 1.468B-2(b)(1), amounts transferred to the qualified settlement fund by, or on
behalf of, a transferor to resolve or satisfy a liability for which the fund is established are
excluded from gross income. However, dividends on stock of a transferor (or a related
person), interest on debt of a transferor (or a related person), and payments in
compensation for late or delayed transfers are not excluded from gross income.

Trust was established to resolve or satisfy claims of the Beneficiaries and Local
Governments that arose from the Defendants’ Activities regarding Product Z and
violations of statutory and/or common laws. The Transfer of Funds was made to
resolve or satisfy the related Liabilities. Such transfer was made by the Defendants to
Trust in accordance with the terms of the Plan. As represented by Trust, the Transfer of
Funds does not fall within the three specific exceptions to the general provision in
§ 1.468B-2(b)(1) that excludes transfers into Trust from Trust's gross income.

Accordingly, based on the information submitted and representations made, we
conclude that Trust may exclude the Transfer of Funds from its modified gross income
because Trust may exclude such transfer from its gross income under § 1.468B-2(b)(1).

3. Exclusion from Gross Income under § 115

Section 115(1) provides that gross income does not include income derived from any
public utility or the exercise of any essential governmental function and accruing to a
state or any political subdivision thereof.

Section 115(2) provides that gross income does not include income accruing to the
government of any possession of the United States, or any political subdivision thereof.
Section 7701(a)(10) provides that the term "State" shall be construed to include the
District of Columbia, where such construction is necessary to carry out provisions of this
title.

Rev. Rul. 77-261, 1977-2 C. B. 45, holds that income from an investment fund,
established under a written declaration of trust by a state, for the temporary investment
of cash balances of the state and its participating political subdivisions, is excludable
from gross income for federal income tax purposes under § 115(1). The ruling reasons
that the investment of cash balances by a state or political subdivision thereof in order
to receive some yield on the funds until needed to meet expenses is a necessary
incident of the power of the state or political subdivision to collect taxes and other
revenue to fund government expenses. The ruling points out that it may be assumed

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that Congress did not desire in any way to restrict a state's participation in enterprises
that might be useful in carrying out projects that are desirable from the standpoint of a
state government and which are within the ambit of a sovereign to properly conduct.

In Rev. Rul. 90-74, 1990-2 C.B. 34, the Service determined that the income of an
organization formed, funded, and operated by political subdivisions to pool various risks
(casualty, public liability, workers' compensation, and employees' health) is excludable
from gross income under § 115(1). In Rev. Rul. 90- 74, private interests neither
materially participate in the organization nor benefit more than incidentally from the
organization.

Trust will use its assets and income thereof to mitigate the effects of the F suffered by
the Beneficiaries and their citizens as a result of Product Z. All Beneficiaries are either
a state or a political subdivision thereof (including Local Governments), the District of
Columbia, or a government of a possession of the United States within the meaning of
§ 115. By carrying on this activity, Trust is performing an essential governmental
function.

Trust will devote its entire operation to the purpose of funding projects to abate the F for
the benefit of the Beneficiaries and their citizens or residents. Other than payments for
goods and services necessary for Trust to perform the task of mitigating the F and for
administering Trust for this purpose, none of Trust 's income will revert to a private
party.

Upon dissolution, Trust shall distribute any funds not needed for the expenses incurred
to wind up and dissolve Trust solely among the Beneficiaries and Local Governments in
accordance with the prescribed schedule of the distribution procedures in the trust
agreement for Trust, which includes a provision for distributions to Local Governments
in accordance with the state/local abatement sharing agreements. None of Trust's
assets will be distributed or revert to any entity that is not a state or a political
subdivision thereof, the District of Columbia, or a government of a possession of the
United States within the meaning of § 115.

Based solely on the facts and representations, we conclude that Trust is exercising an
essential governmental function, with its income accruing to a state or a political
subdivision thereof, the District of Columbia, or a government of any possession of the
United States. Therefore, Trust's income is excludable from gross income under § 115.

The ruling contained in this letter is based upon information and representations
submitted by or on behalf of Trust and accompanied by a penalty of perjury statement
executed by an individual with authority to bind Trust and upon the understanding that
there will be no material changes in the facts. While this office has not verified any of
the material submitted in support of the request for this ruling, it is subject to verification
on examination. The Associate office will revoke or modify a letter ruling and apply the
revocation retroactively if there has been a misstatement or omission of controlling

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facts; the facts at the time of the transaction are materially different from the controlling
facts on which the ruling was based; or, in the case of a transaction involving a
continuing action or series of actions, the controlling facts change during the course of
the transaction. See Rev. Proc. 2025-1, section 11.05.
No opinion is expressed concerning the federal tax consequences under any Code
provision other than the provisions specifically cited above. Except as expressly
provided herein, no opinion is expressed or implied concerning the tax consequences of
any aspect of any transaction or item discussed or referenced in this letter. This ruling
concerns only the federal income tax treatment of Trust's income and may not be cited
or relied upon by any other taxpayer, including Trust's beneficiaries.
This ruling is directed only to Trust as the taxpayer requesting it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.
In accordance with the power of attorney on file with this office, a copy of this letter is
being sent to each of Trust's authorized representatives.

Sincerely,

ANNA W. GLEYSTEEN
Senior Technician Reviewer, Branch 6
(Income Tax & Accounting)

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