Life Settlement Players Struggle With Tax Form Void

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.

The TCJA

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.