IRS details new reporting requirements for life insurance

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The Internal Revenue Service spelled out new information reporting requirements Thursday for some life insurance contracts under the recently enacted Tax Cuts and Jobs Act.

The new requirements will apply to reportable death benefits paid, along with reportable policy sales, that were made after Dec. 31, 2017. The IRS provided transitional guidance Thursday postponing any reporting under Section 6050Y of the tax code until the final regulations are issued. The transitional guidance gives taxpayers some extra time to satisfy any reporting obligations that could occur before the IRS and the Treasury publish the final regulations.

Information returns have to be filed in the situations below, according to the IRS:

• 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.”

A “reportable policy sale” is usually the acquisition of an interest in a life insurance contract, either directly or indirectly, if the acquirer has no substantial family, business or financial relationship to the insured. A “reportable death benefit” is an amount paid when an insured person dies under a life insurance contract that was transferred in a reportable policy sale.

The IRS is asking for public comments on the proposed regulations to implement the new reporting requirements. The details are in Notice-2018-41.

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