Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Life Health > Life Insurance

Life Settlement Players Struggle With Tax Form Void

Your article was successfully shared with the contacts you provided.

Life insurers and life settlement firms are struggling to comply with new tax reporting rules without an official tax form, a draft tax form, or a clear idea of what the Internal Revenue Service might like to see.

Officials at the IRS and at the parent of the IRS, the U.S. Treasury Department, see developing Tax Cuts and Jobs Act life settlement reporting forms as an urgent matter, Thomas Weinberger said today in New York,  at the Life Insurance Settlement Association’s eighth annual Life Settlement Institutional Investor Conference.

“They’re very much in listening mode,” Weinberger said.

But Jim Maxson, another conference speaker, said getting a final version of a life settlement reporting form could take months, partly because IRS officials are just starting to learn how life settlement firms, or “secondary market” players, buy life insurance policies from the insureds, and how institutional investors, or “tertiary market” players, buy policies from the life settlement firms.

Weinberger is a partner at Schulte Roth & Zabel.

Maxson is LISA’s chairman, and partner at Atlanta-based Edwards Maxson Mago & Macaulay LLP.


LISA rewrote its conference schedule to squeeze in a session on the impact of the new TCJA life settlement rules.

Life settlement players have always faced reporting requirements, but the TCJA, which was signed into law in December, has created reporting requirements designed specifically for life settlement market players, Weinberger said.

Section 13520 of the law added Section 6050Y to the Internal Revenue Code. IRC Section 6050Y requires “every person who acquires a life insurance contract or any interest in a life insurance contract in a reportable policy sale” to provide a tax return.

The tax return must give the name, address and taxpayer identification number of the policy buyer; the names, addresses and taxpayer identification numbers of each recipient of the payments; the date of the sale; the name of the policy issuer; the policy number of each contract involved; and the amount of each payment.

The policy buyer is supposed to send a sale statement to each person listed on the return.

When an insured covered by a policy that was sold dies, the insurer is supposed to provide a return that lists the recipients of the benefits payments, the date of each payment, the gross amount of each payment, and each benefits recipient’s “estimate of the investment in the contract.”

The IRS could use that information to determine how much taxable income a policy buyer earned from a policy.

Life Settlement Rule Implementation

Officials from the IRS and the Treasury Department sat down with representatives from the American Council of Life Insurers (ACLI) and LISA on Friday, Maxson said.

The officials are gearing up to meet with representatives from the Institutional Life Markets Association, a group for tertiary market players, later, according to Weinberger.

Maxson said the ACLI would like to see life insurers get life settlement transaction returns within 30 days after transactions occur, rather than at the end of the year.

The ACLI says life insurers need to get the returns throughout the year, and well before December, to include the information in the 1099 forms that go out early in the year, Weinberger reported.

In many cases, life settlement organizations that work with institutional investors set up a securities intermediary to hold the life insurance policies, to serve as the owner of record and simplify transactions involving blocks of policies.

The ACLI would like for life insurers to be able to list a securities intermediary as a policy owner of record, and for life insurers to have no obligation to “look behind the curtain” to identify the owners of the securities intermediary, Weinberger said.

— Read Life Settlement Investors Head to New York on ThinkAdvisor.

— Connect with ThinkAdvisor Life/Health on Facebook and Twitter.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.