Proposals for rules issued for the reporting of information for life insurance contract transactions

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The regulations proposed by the IRS (REG-103083-18) under Sec. 6050Y, which governs the reporting obligations for reportable life insurance contract sales and reportable death benefit payments. The rules also provide guidance on the amount of death benefits excluded from gross income under Sec. 101 (a) (3) following a reportable policy sale. Both provisions were added to the Code by statute known as the Tax Cuts and Jobs Act, PL 115-97, and are in effect for tax years beginning after December 31, 2017.

Reg. prop. Second. 1.6050Y-1 contains definitional provisions. Reg. prop. Second. 1.6050Y-2 contains the rules for reporting payments made by the acquirer in connection with a reportable policy sale. Reg. prop. Second. 1.6050Y-3 describes how to report the transferor’s investment in the contract by Sec. 6050Y transmitter (b). Reg. prop. Second. 1.6050Y-4 contains the rules for reporting death benefits to be reported by the payer.

Reg. prop. Second. 1.101-1 provides guidance on determining the amount of exclusion of gross income from the proceeds of life insurance contracts payable in the event of death.

The IRS explained that it changed the rules after receiving comments on Notice 2018-41, which provided for the first rules under sec. 6050Y. It is also holding a public hearing on the regulations on June 5 and is seeking comments by May 9.

The preamble to the regulation states that the following forms must be used to comply with Sec. 6050Y Reporting Requirements:

  • Form 1099-LS, Sale of reportable life insurance;
  • Form 1099-SB, Investment by the seller in a life insurance contract;
  • Form 1099-R, Distributions of pensions, annuities, retirement or profit sharing plans, IRAs, insurance contracts, etc.; and
  • Form W-8ECI, Certificate by a foreigner that the income is actually related to carrying on a business or business in the United States.

Sally P. Schreiber, JD, ([email protected]) is a JofA senior editor.


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