Selling Structured Settlements or Awards
If you have won a lottery or are entitled to the periodic cash payments of a structured settlement, the best decision that you can make (generally speaking) is to keep the money flowing and not to sell.
The periodic payments keep you from blowing the money all at once.
The periodic payments give you a long period of time to enjoy your new found wealth, so do not be in a hurry to spend it...that was the original intent of the prize being paid out over 20 years.
Selling Your Structured Settlement (not Capital gain)
You will also not be allowed to convert your ordinary income to capital gain by selling your settlement proceeds to a third party. See Davis v Comm (1997). You are selling your rights to receive the income payments, not a capital asset.
If you have a legal settlement that involves an annuity type cash flow or structured settlement, you can get into trouble. The reason for this is, that a person is taxed on the actual or constructive receipt of money. While you are receiving your structured payments, you will only recognize income when you receive either the payment or the rights to the payment.
Think about what happens when you sell your right to receive all the future payments. You are selling an asset worth x x amount of dollars and you will have to pay income tax on that amount in the year of sale.
But what is that asset worth? The amount realized on that transaction is the present value (PV) of all future cash flows, discounted at the appropriate interest rate. What did you receive in cash?
The situation can go south fast when you sell this asset for less that the tax liability, which can happen very easily.
There are many companies out there waiting to buy your structured settlement for pennies on the dollar. Its your cash, get it now? Caveat venditor!!