The Tax Cuts and Jobs Act passed late in 2017 made enormous changes to many long-standing 1099/W-2 reporting situations. This includes new information reporting requirements for certain life insurance contracts.

Added as Internal Revenue Code Section 6050Y, (included in the Tax Cuts and Jobs Act (TCJA) from December of 2017) these new requirements are still being finalized. However, what we know so far is that the new reporting requirements apply to reportable death benefits paid and reportable policy sales since January 1, 2018. Though we are still awaiting final regulations the IRS has indicated that under the new law information returns need to be filed in the following situations:

• By anyone who acquires a life insurance contract, or any interest in a life insurance contract, in a “reportable policy sale”;
• By an issuer of a life insurance contract upon notice of a transaction required to be reported above or upon any notice of a transfer of a life insurance contract, or any interest in a life insurance contract, to a foreign person; and
• By any payor of “reportable death benefits.”

As usual definitions are crucially important to understanding the law and how it might apply to your organization. To that end a “reportable policy sale” is generally considered by the IRS to be the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship to the insured. From there, a “reportable death benefit” is an amount paid at the death of the insured under a life insurance contract that was transferred in a reportable policy sale.

The bottom line here is that the new law imposes reporting requirements on every person who acquires a life insurance contract, or any interest in a life insurance contract, in a reportable policy sale during the taxable year (the “acquirer”). Under the new law the acquirer must file a return with the IRS setting forth (1) the acquirer’s name, address, and taxpayer identification number (TIN); (2) the name, address, and TIN of each recipient of payment in the reportable policy sale; (3) the date of the sale; (4) the name of the issuer of the life insurance contract sold and the policy number of such contract; and (5) the amount of each payment. Under §6050Y(a)(2), the acquirer must also furnish written statements to each payment recipient and the issuer named in the return.

The statements furnished by the acquirer to each payment recipient and the issuer must also include the name, address, and phone number of the acquirer’s information contact. The term “payment” is defined as “the amount of cash and the fair market value of any consideration transferred in the sale.” The term “issuer” is defined as “any life insurance company that bears the risk with respect to a life insurance contract on the date any return or statement is required to be made.

As for the reporting and issuers - this will be required by an issuer of a life insurance contract upon the receipt of a written statement furnished by an acquirer, or upon any notice of the transfer of a life insurance contract to a foreign person. Under the law the issuer must file a return with the IRS setting forth (1) the name, address, and TIN of the seller who transfers any interest in such contract in such sale; (2) the seller’s investment in the contract within the meaning of §72(e)(6); and (3) the policy number of the contract. In addition, the issuer must furnish the seller with a written statement.

Furthermore, the new law imposes reporting requirements on every person who makes a payment of reportable death benefits during any taxable year with reporting to be done consistent with the rules discussed above. The IRS announced in April of 2018 that they are working on all of the specifics of the reporting and due diligence that must be done - with guidance to be forthcoming at a later date.

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