REPORTING FOR LIFE INSURANCE POLICIES
November 30, 2019 - Douglas Myser
Reporting for life insurance policies. The Internal Revenue Service issued final regulations on the new information reporting requirements for certain life insurance contract transactions. The requirement was authorized under new section 6050Y, added to the Internal Revenue Code by the Tax Cuts and Jobs Act, the tax reform legislation enacted in December 2017. The final regulations generally apply to reportable policy sales and payments of death benefits occurring after Dec. 31, 2018. The final regulations provide taxpayers additional time to satisfy any reporting obligations for reportable policy sales or death benefit payments made prior to publication of final regulations. Among other things, these requirements are designed to help people who sell life insurance contracts properly report any gain from that sale. Reporting for life insurance policies.
Every person who acquires a life insurance contract, or any interest in a contract, in a reportable policy sale during the tax year must file a return with the IRS. The acquirer must also furnish written statements to each payment recipient and the issuer named in the return. The issuer, upon receiving such a statement, must file a return with the IRS and furnish a written statement to the seller. For further information, see Form 1099-LS, Form 1099-SB, and their instructions, available on IRS.GOV. The final regulations also provide guidance on new reporting requirements applicable to each person who makes a payment of reportable death benefits and how to calculate the amount of death benefits excluded from gross income. The final regulations also include definitions relevant to reportable policy sales and exceptions. Reporting for life insurance policies.
Generally, amounts received under a life insurance contract that are paid by reason of the death of the insured are excluded from gross income for Federal income tax purposes under section 101 (a) (1). However, if a life insurance contract or interest therein is sold or otherwise transferred for valuable consideration, the "transfer for value rule" set forth in section 101 (a) (2) limits the excludable portion of the amount received by reason of death of the insured to the sum of the consideration paid for the contract or interest therein.
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