IRS Releases Final Regulations Regarding Information Reporting of Certain Life Insurance Contract Transactions and Modifications to the Transfer for Valuable Consideration Rules

Paul Ogawa
November 7, 2019

The IRS is set to officially release final regulations related to information reporting obligations under Section 6050Y related to reportable policy sales of life insurance contracts and payments of reportable death benefits. The rules codified in these new final regulations will affect the filing responsibilities of those affected with regard to Forms 1099-LS and 1099-SB, and Form 1099-R to a certain extent.

These final regulations address a number of issues relating to definitions of certain terms, filing responsibilities, and dates tied to those filing responsibilities. These include the following:

  • Applicable dates to which information return reporting is required: Sections 1.6050Y-1 through 1.6050Y-4 requiring reportable death benefits and reportable policy sales to be reported will only include those sales and payments made after December 31, 2018. Furthermore, no reporting is required under Section 6050Y for those reportable policy sales and reportable death benefits paid after December 31, 2017 and before January 1, 2019.
    • This change was made in reaction to those comments which cited the required time to integrate the new forms and changes to the 1099-R into reporting systems.
  • Applicable dates and defining “reportable death benefits”: The definition of “reportable death benefits” was amended using Section 1.6050Y-1(a)(14) to apply only to transfers of interest in life insurance contracts made after December 31, 2018.
  • Transition Relief: In reaction to comments received, transitional relief was addressed twice.
    • First, transition relief applies to reportable policy sales and reportable death benefits paid after December 31, 2018 and on or before the publication of these regulations in the federal register, which will likely be October 31, 2019.
    • Secondly, the final regulations will provide issuers with at least 120 days after the final regulations are published in the Federal Register (likely October 31, 2019) to allow issuers to filer returns and furnish statements to the requisite recipients.
      • This 120 day transitional relief period also applies to recipients of reportable policy sale payments, sellers of interests, reportable death benefit payment recipients, and those returns required to be filed.
    • Applicable dates for Section 101 regulations: In response to public comments, the applicability of definitions and rules set fort in Sections 1.101-1(b) through (g) of the final regulations applies to reportable policy sales made after December 31, 2018, and reportable death benefits paid after December 31, 2018.
    • Reportable Death Benefits paid to Foreign Persons: The final regulations do not require reportable death benefits paid to a foreign person must be reported on both Form 1042-S and Form 1099-R.

Please note that the official publication of these final regulations is pending and will likely occur on October 31, 2019. To monitor the release of these final regulations, please visit the Federal Register website by clicking here.

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Paul Ogawa

Paul Ogawa is a Senior Regulatory Counsel at Sovos Compliance. As part of the Regulatory Analysis team, his main areas of focus are state and federal tax withholding, the Affordable Care Act (ACA), and Canadian tax information reporting. Prior to Sovos, Paul worked as a litigation attorney in Boston area law firms, representing clients in insurance subrogation claims, family law matters, and employment disputes. Paul is a member of the Massachusetts Bar, earned his B.A. from Brandeis University and his J.D. from the Suffolk University Law School.
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