IRS proposes rules for reporting life insurance transactions

By Sally P. Schreiber, J.D.

The IRS proposed regulations (REG-103083-18) under Sec. 6050Y, which governs reporting obligations for reportable policy sales of life insurance contracts and payments of reportable death benefits. The rules also provide guidance on the amount of death benefits excluded from gross income under Sec. 101(a)(3) following a reportable policy sale. Both provisions were added to the Code by the law known as the Tax Cuts and Jobs Act, P.L. 115-97, and are effective for tax years beginning after Dec. 31, 2017. The IRS explained that it amended the rules after it received comments on Notice 2018-41, which provided initial guidance under Sec. 6050Y.

Prop. Regs. Sec. 1.6050Y-1 contains definitional provisions. Prop. Regs. Sec. 1.6050Y-2 contains the rules for reporting payments made by the acquirer in a reportable policy sale. Prop. Regs. Sec. 1.6050Y-3 describes how to report the transferor's investment in the contract by the Sec. 6050Y(b) issuer. Prop. Regs. Sec. 1.6050Y-4 contains the rules for reporting reportable death benefits by the payer. Prop. Regs. Sec. 1.101-1 provides guidance on determining the amount of the exclusion from gross income of proceeds of life insurance contracts payable by reason of death.

The preamble to the regulations states that the following forms are to be used to comply with the Sec. 6050Y reporting requirements:

  • Form 1099-LS, Reportable Life Insurance Sale;
  • Form 1099-SB, Seller's Investment in Life Insurance Contract;
  • Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.; and
  • Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States.

For more on life settlement transactions, see "Spotlight on Life Settlement Transactions."

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