60 / What are the new reporting requirements that the 2017 tax reform legislation imposed on taxpayers involved in reportable policy sales of life insurance contracts?
Editor’s Note: Upon release of the final regulations, the IRS clarified that no reporting was required under Section 6050Y for reportable policy sales made and reportable death benefits paid after December 31, 2017, and before January 1, 2019.1
The 2017 tax reform legislation imposes certain reporting requirements when an existing life insurance policy has been sold in a “reportable policy sale”. The requirements apply to anyone who acquires a life insurance contract (or an interest in a life insurance contract) in a reportable policy sale and any “issuer” of the contract involved. These requirements were to be effective for reportable policy sales made after December 31, 2017 and reportable death benefits paid after December 31, 2017. However, under the final regulations, the IRS and Treasury clarified that the requirements would apply to reportable policy sales and payments of death benefits occurring after December 31, 2018.
The final regulations also provide an exception from the definition of reportable policy sale with respect to the indirect acquisition of an interest in a life insurance contract by a person if a partnership, trust, or other entity in which an ownership interest is being acquired directly or indirectly holds the interest in the life insurance contract and acquired that interest before January 1, 2019, or acquired that interest in a reportable policy sale reported in compliance with IRC Section 6050Y(a) and Treasury Regulation Section 1.6050Y-2.2
Planning Point: Forms 1099-LS and 1099-SB now contain instructions regarding these reporting requirements under the regulations, which were finalized late in 2019.3
Form 1099-LS must be filed by anyone who acquires the life insurance in a reportable policy sale, while Form 1099-SB must be filed by an issuer of the life insurance policy to report information about the seller’s investment in the contract and contract surrender value, in addition to the basic information about the transaction.