The Top 4 Tips for Insurers Issuing Form 1099-SB

Wendy Walker
May 18, 2020

In February, some of the largest U.S. insurers came together for a Sovos-sponsored virtual forum. The forum focused on how these insurers managed their reporting obligations for the new IRS Forms 1099-LS and 1099-SB.

Below you will find important background information on Forms 1099-LS and SB and four tips for issuing Form 1099-SB gathered from this forum.

Background on 1099-LS & SB

The Tax Cuts & Jobs Act (TCJA) of 2017 created section 6050Y of the internal revenue code and with that, the IRS created new Forms 1099-LS & SB.  Form 1099-LS reports proceeds from the acquisition of a reportable life insurance policy sale. Form 1099-SB is issued by the insurer to report the seller’s investment in the life insurance policy that was sold. These forms were designed to give the IRS visibility into the cost basis details that taxpayers should be using to calculate their gains and losses associated with these policy sales. In the final regulations, the IRS stated that reporting on reportable policy sales will begin with sales that occurred as of January 1, 2019 forward. Therefore, many issuers did not begin exchanging the new Forms until early 2020.

Tips for insurers issuing Forms 1099-SB

Tip 1: Many inbound mail rooms already have procedures for routing certain types of mail to key departments. Work with those mail rooms to add specific procedures for routing Forms 1099-LS. And be sure to give them samples of the form.  

When your company receives a Form 1099-LS from the acquirer of a life insurance policy, it triggers the requirement for your organization to issue Form 1099-SB. However, many insurers operate in multiple locations around the U.S..  The potential for Forms 1099-LS to be received in multiple organizational locations requires a formalized process to redirect those Forms to the right areas.

Tip 2: Identify whether a notice of transfer to a foreign person occurred using your existing organizational policies to validate non-U.S. status, including collecting Forms W-8. Relying on this existing process will ensure that Form 1099-SB is issued in compliance with the requirement.

A notice of transfer to a foreign person can be any notice that transfers title to, possession of, or legal ownership of a life insurance contract with foreign indicia. This includes information provided for non-tax purposes such as change of address, loan, premium or death benefits information. All of this information applies unless you know that no transfer of the contract has occurred or know that the transferee is a U.S. person.

Tip 3: Contact the policyholder to validate the correct date of sale when multiple Forms 1099-LS are received.

Life insurance contracts are often acquired by more than one party. The law requires each acquirer to issue Form 1099-LS for their portion of the policy sale. When the insurer receives Form 1099-LS, they are required to issue Form 1099-SB reflecting the investment amount and the surrender value that corresponds to the date of sale. Some insurers are receiving multiple Forms 1099-LS for the same policy that reflects differing policy sale dates. As a result, insurers are unsure what date to connect to the investment value and surrender value amounts that need to be reported on the corresponding Form 1099-SB .

Tip 4: When a Form 1099-LS is issued but not filed with the IRS and needs to be changed, the replaced version should not be marked as an official correction. 

The corrected checkbox is used on all Forms 1099 when a form that has previously been filed with the IRS needs to be submitted in a corrected version. Original Forms 1099-LS for 2019 were not due to be filed with the IRS until March 31, 2020 for electronic filers, but many insurers were receiving 2019 versions of the form in January 2020 where the corrected checkbox had been selected.

Curious how Sovos 1099 reporting software can keep your business compliant with new forms automatically?

Get in touch with a Sovos 1099 reporting expert.

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Wendy Walker

Wendy Walker is the principal of Tax Information Reporting solutions at Sovos. She has more than 15 years of tax operations management and tax compliance experience with emphasis in large financial institutions, having held positions with CTI Technologies (a division of IHS Markit), Zions Bancorporation and JP Morgan Chase. Wendy has served as a member of several prominent industry advisory boards. She graduated with a BS in Process Engineering from Franklin University and earned her MBA from Ohio Dominican University, in Columbus, Ohio.
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