Information Reporting for Certain Life Insurance Contract Transactions and Modifications to the Transfer for Valuable Consideration Rules, 11009-11028 [2019-05400]
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Federal Register / Vol. 84, No. 57 / Monday, March 25, 2019 / Proposed Rules
direct or indirect ownership of an equity
interest in the Corporate Partner means
ownership of Stock of the Corporate
Partner that would be attributed to a
person under section 318(a)(2) (except
that the 50-percent ownership limitation
in section 318(a)(2)(C) does not apply)
and under section 318(a)(4) (but
otherwise without regard to section
318).
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(i) Effective/applicability date. The
regulations in this section are effective
as of the date of their publication as
final regulations in the Federal Register.
Kirsten Wielobob,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2019–05545 Filed 3–22–19; 8:45 am]
BILLING CODE 4830–01–P
Send submissions to:
CC:PA:LPD:PR (REG–103083–18), Room
5203, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand-delivered Monday through
Friday between the hours of 8 a.m. and
4 p.m. to CC:PA:LPD:PR (REG–103083–
18), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue NW,
Washington, DC 20224, or sent
electronically via the Federal
eRulemaking Portal at www.regulations
.gov (IRS REG–103083–18).
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
Kathryn M. Sneade, (202) 317–6995;
concerning submissions of comments
and requests to speak at the public
hearing, Regina Johnson, (202) 317–
6901 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
ADDRESSES:
DEPARTMENT OF THE TREASURY
Paperwork Reduction Act
Internal Revenue Service
The collection of information
contained in this notice of proposed
rulemaking has been submitted to the
Office of Management and Budget for
review under OMB Control Numbers
1545–0119, 1545–1621, and 1545–2281
in accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C.
3507(d)). In general, the collection of
information in the proposed regulations
is required under section 6050Y of the
Internal Revenue Code (Code): (1) The
requirement under § 1.6050Y–2 of the
proposed regulations for an acquirer to
report certain information about
payments made in reportable policy
sales is required under section 6050Y(a);
(2) the requirement under § 1.6050Y–3
of the proposed regulations for an issuer
to report certain information about
transferors of life insurance contracts is
required under section 6050Y(b); and (3)
the requirement under § 1.6050Y–4 of
the proposed regulations for a payor to
report certain information about
payments of reportable death benefits is
required under section 6050Y(c).
Section 1.6050Y–3(a)(3) of the proposed
regulations would require the issuer to
report to the seller and the IRS the
amount the seller would have received
if the seller had surrendered the life
insurance contract on the date of the
reportable policy sale. This information
is necessary to allow the seller and the
IRS to determine the character of all or
a portion of the seller’s taxable income
from the sale of the life insurance
contract (capital or ordinary). Sections
1.6050Y–3(f)(1) and 1.6050Y–4(e)(1) of
the proposed regulations contain
reporting exceptions for certain foreign
beneficial owners. To determine
qualification for these reporting
26 CFR Part 1
[REG–103083–18]
RIN 1545–BO49
Information Reporting for Certain Life
Insurance Contract Transactions and
Modifications to the Transfer for
Valuable Consideration Rules
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking;
notification of public hearing.
AGENCY:
This document contains
proposed regulations providing
guidance on new information reporting
obligations under section 6050Y related
to reportable policy sales of life
insurance contracts and payments of
reportable death benefits. The proposed
regulations also provide guidance on the
amount of death benefits excluded from
gross income under section 101
following a reportable policy sale. The
proposed regulations affect parties
involved in certain life insurance
contract transactions, including
reportable policy sales, transfers of life
insurance contracts to foreign persons,
and payments of reportable death
benefits. This document invites
comments and provides a notice of a
public hearing on these proposed
regulations.
SUMMARY:
Written or electronic comments
must be received by May 9, 2019.
Requests to speak and outlines of topics
to be discussed at the public hearing
scheduled for June 5, 2019, at 10 a.m.
must be received by May 9, 2019.
DATES:
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exceptions, §§ 1.6050Y–3(f)(1) and
1.6050Y–4(e)(1) would require that
certain foreign beneficial owners
provide a Form W–8ECI, ‘‘Certificate of
Foreign Person’s Claim that Income is
Effectively Connected with the Conduct
of a Trade or Business in the United
States,’’ to certain persons. This
information is necessary to document
whether the reporting exception in
either § 1.6050Y–3(f)(1) or § 1.6050Y–
4(e)(1) applies in a particular situation.
The likely respondents to the
collection of information are (1) Entities
acquiring life insurance contracts in
reportable policy sales; (2) life insurance
companies; (3) life insurance companies
and other entities making payments of
reportable death benefits; and (4)
entities receiving payments of
reportable death benefits.
The burden for the collection of
information contained in § 1.6050Y–2 of
the proposed regulations will be
reflected in the burden on the form that
the IRS created to request the
information in section 6050Y(a) and
§ 1.6050Y–2 of the proposed regulations
(Form 1099–LS, ‘‘Reportable Life
Insurance Sale’’). The burden for the
collection of information contained in
§ 1.6050Y–3 of the proposed regulations
will be reflected in the burden on the
form that the IRS created to request the
information in section 6050Y(b) and
§ 1.6050Y–3 of the proposed regulations
(Form 1099–SB, ‘‘Seller’s Investment in
Life Insurance Contract’’). The OMB
Control Number for both of these forms
is 1545–2281. The burden for the
collection of information contained in
§ 1.6050Y–4 of the proposed regulations
will be reflected in the burden on the
Form 1099–R, ‘‘Distributions From
Pensions, Annuities, Retirement or
Profit-Sharing Plans, IRAs, Insurance
Contracts, etc.’’ (OMB Control Number
1545–0119). The burden for the
collection of information contained in
§§ 1.6050Y–3(f)(1) and 1.6050Y–4(e)(1)
of the proposed regulations will be
reflected in the burden on the Form W–
8ECI (OMB Control Number 1545–
1621), when the burden is revised to
reflect the additional collection of
information in §§ 1.6050Y–3(f)(1) and
1.6050Y–4(e)(1) of the proposed
regulations.
Comments on the collection of
information should be sent to the Office
of Management and Budget, Attn: Desk
Officer for the Department of the
Treasury, Office of Information and
Regulatory Affairs, Washington, DC
20503, with copies to the Internal
Revenue Service, Attn: IRS Reports
Clearance Officer, SE:CAR:MP:T:T:SP,
Washington, DC 20224. Comments on
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the collection of information should be
received by May 24, 2019.
Comments are specifically requested
concerning:
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the IRS,
including whether the information will
have practical utility;
The accuracy of the estimated burden
associated with the proposed collection
of information;
How the quality, utility, and clarity of
the information to be collected may be
enhanced;
How the burden of complying with
the proposed collection of information
may be minimized, including through
the application of automated collection
techniques or other forms of information
technology; and
Estimates of capital or start-up costs
and costs of operation, maintenance,
and purchase of services to provide
information.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
specify the manner in which and time
at which the information reporting
obligations must be satisfied. The
proposed regulations also provide
definitions and rules that govern the
application of the information reporting
obligations.
Section 13522 of the Act amended
section 101. New section 101(a)(3)
defines the term ‘‘reportable policy
sale’’ and provides rules for determining
the amount of death benefits excluded
from gross income following a
reportable policy sale. The proposed
regulations under section 101 provide
definitions applicable under sections
101 and 6050Y and guidance for
determining the amount of death
benefits excluded from gross income
following a reportable policy sale.
Notice 2018–41, 2018–20 I.R.B. 584,
described sections 13520 and 13522 of
the Act and the regulations the
Department of the Treasury (Treasury
Department) and the IRS expected to
propose under sections 101 and 6050Y.
The Treasury Department and the IRS
received comments in response to the
notice and considered these comments
in developing these proposed
regulations.
Background
This document contains proposed
amendments to 26 CFR part 1 under
sections 101 and 6050Y of the Code
(proposed regulations). The proposed
regulations implement recent legislative
changes to sections 101 and 6050Y by
sections 13520 and 13522 of ‘‘[a]n Act
to provide for reconciliation pursuant to
titles II and V of the concurrent
resolution on the budget for fiscal year
2018,’’ Public Law 115–97, 131 Stat.
2054, 2149 (Act). The proposed
regulations under section 101 amend
final regulations under section 101
published in the Federal Register on
November 26, 1960 (25 FR 11402), as
subsequently amended on December 24,
1964 (29 FR 18356), September 27, 1982
(47 FR 42337), and July 26, 2007 (72 FR
41159) (existing regulations).
Section 13520 of the Act added
section 6050Y to chapter 61
(Information and Returns) of subtitle A
of the Code (chapter 61). Section 6050Y
imposes information reporting
obligations related to certain life
insurance contract transactions,
including reportable policy sales and
payments of reportable death benefits.
Section 6050Y provides that each of the
returns required by section 6050Y is to
be made ‘‘at such time and in such
manner as the Secretary shall
prescribe.’’ The proposed regulations
under section 6050Y implement section
6050Y. The proposed regulations
Explanation of Provisions
Section 6050Y imposes information
reporting obligations related to
reportable policy sales of life insurance
contracts and payments of reportable
death benefits. Section 1.6050Y–1 of the
proposed regulations contains
definitional provisions. Sections
1.6050Y–2, 1.6050Y–3, and 1.6050Y–4
of the proposed regulations provide
guidance on the reporting obligations
imposed by section 6050Y(a), (b), and
(c), respectively.
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1. Section 1.6050Y–1: Definitions
The definitions set forth in § 1.6050Y–
1 of the proposed regulations apply for
purposes of §§ 1.6050Y–1 through –4 of
the proposed regulations.
Under the proposed regulations, ‘‘life
insurance contract,’’ also referred to as
a life insurance policy, is defined by
reference to section 7702(a). See
§ 1.6050Y–1(a)(9) of the proposed
regulations. ‘‘Interest in a life insurance
contract,’’ ‘‘transfer of an interest in a
life insurance contract,’’ ‘‘direct
acquisition of an interest in a life
insurance contract,’’ ‘‘indirect
acquisition of an interest in a life
insurance contract,’’ and ‘‘reportable
policy sale’’ are defined by reference to
the proposed regulations under section
101. See § 1.6050Y–1(a)(3), (5), (6), (14),
and (19) of the proposed regulations.
‘‘Foreign person’’ means a person that is
not a ‘‘United States person,’’ as defined
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in section 7701(a)(30). See § 1.6050Y–
1(a)(4) of the proposed regulations.
Section 6050Y(a) requires any person
that acquires a life insurance contract or
any interest in a life insurance contract
in a reportable policy sale during any
taxable year to report certain
information regarding the transaction,
including information about each
recipient of payment in the reportable
policy sale. Under the proposed
regulations, ‘‘acquirer’’ means any
person that, directly or indirectly,
acquires an interest in a life insurance
contract in a reportable policy sale. See
§ 1.6050Y–1(a)(1) of the proposed
regulations.
Section 6050Y(d)(1) defines
‘‘payment,’’ with respect to any
reportable policy sale, to mean the
amount of cash and the fair market
value of any other consideration
transferred in the sale. Under the
proposed regulations, ‘‘reportable policy
sale payment’’ means the total amount
of cash and the fair market value of any
other consideration transferred, or to be
transferred, in a reportable policy sale,
including any amount of a reportable
policy sale payment recipient’s debt
assumed by the acquirer in a reportable
policy sale. See § 1.6050Y–1(a)(15) of
the proposed regulations. An interest in
a life insurance contract may be
acquired directly, from the direct holder
of the interest, or indirectly, through the
acquisition of an ownership interest in
an entity that holds an interest in a life
insurance contract. See §§ 1.101–
1(e)(3)(i) and (ii) and 1.6050Y–1(a)(3)
and (5) of the proposed regulations. In
the case of an indirect acquisition of an
interest in a life insurance contract that
is a reportable policy sale, the reportable
policy sale payment is the amount of
cash and the fair market value of any
other consideration transferred for the
ownership interest in the entity that is
appropriately allocable to the interest in
the life insurance contract held by the
entity. See § 1.6050Y–1(a)(15) of the
proposed regulations. The proposed
regulations require the acquirer to report
the aggregate amount of reportable
policy sale payments made, or to be
made, with respect to a reportable
policy sale. See § 1.6050Y–2(a)(5) of the
proposed regulations. Accordingly,
when an acquirer makes payments in
installments in more than one year, the
acquirer reports the total amount of all
payments in the year of the policy sale.
‘‘Reportable policy sale payment
recipient’’ means any person that
receives a reportable policy sale
payment in a reportable policy sale. See
§ 1.6050Y–1(a)(16) of the proposed
regulations. The seller in a reportable
policy sale is a reportable policy sale
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payment recipient if the seller receives
a reportable policy sale payment. A
broker or other intermediary that retains
a portion of the cash or other
consideration transferred in a reportable
policy sale is also a reportable policy
sale payment recipient. Id. The
aggregate amount of all reportable
policy sale payments made with respect
to a reportable policy sale must be
reported under section 6050Y(a). The
objective of the proposed regulations is
for the acquirer to report the net
payment, if any, made to each person
involved in a reportable policy sale.
Accordingly, if the acquirer transfers
cash or other consideration to a broker
in a reportable policy sale, the broker is
a reportable policy sale payment
recipient, and the reportable policy sale
payment made to the broker is the
amount of cash and the fair market
value of any other consideration
retained by the broker. The reportable
policy sale payment made to the seller
would be the amount of cash and fair
market value of any other consideration
transferred to the seller, including any
amount of the seller’s debt assumed by
the acquirer in a reportable policy sale,
and it would not include the amount of
the reportable policy sale payment made
to the broker.
Comments received on Notice 2018–
41 suggested that the amount of the
payment to a seller in a reportable
policy sale that should be reported
under section 6050Y(a) should be the
amount actually paid to the seller.
These comments were taken into
consideration in developing the
definition of ‘‘reportable policy sale
payment recipient’’ in the proposed
regulations, as well as the reporting
requirements in the proposed
regulations, which require the acquirer
in a reportable policy sale to report,
with respect to each reportable policy
sale payment recipient, the aggregate
amount of reportable policy sale
payments made to that person. See
§ 1.6050Y–2(a)(5) of the proposed
regulations.
Comments received on Notice 2018–
41 suggested that no reporting should be
required for payments of ancillary costs
and expenses in a reportable policy sale,
including broker fees, securities
intermediary fees, and other fees and
expenses. Comments noted that the
person paying these expenses is
normally paying them in connection
with the conduct of a trade or business,
and is therefore required to report these
amounts to payees in accordance with
applicable rules. The proposed
regulations require the acquirer in a
reportable policy sale to report all
reportable policy sale payments made
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with respect to the reportable policy
sale, meaning all amounts of cash and
the fair market value of any other
consideration transferred in the
reportable policy sale, including any
amount of a reportable policy sale
payment recipient’s debt assumed by
the acquirer in a reportable policy sale.
The Treasury Department and the IRS
are considering whether reportable
policy sale payments should be defined
to exclude payments of any ancillary
costs and expenses and request
comments regarding the types of
payments made by acquirers in
reportable policy sales, the recipients of
those payments, and existing reporting
requirements applicable to those
payments.
Section 6050Y(b) requires issuers of
life insurance contracts receiving a
written statement furnished by an
acquirer under section 6050Y(a) and
§ 1.6050Y–2 of the proposed regulations
(a ‘‘reportable policy sale statement’’ or
‘‘RPSS,’’ under § 1.6050Y–1(a)(17) of the
proposed regulations) or notice of a
transfer to a foreign person to report
certain information regarding sellers.
Under the proposed regulations,
‘‘seller’’ means any person that holds an
interest in a life insurance contract and
transfers that interest, or any part of that
interest, to an acquirer in a reportable
policy sale or any person that owns a
life insurance contract and transfers title
to, possession of, or legal ownership of
that life insurance contract to a foreign
person. See § 1.6050Y–1(a)(18) of the
proposed regulations. ‘‘Notice of a
transfer to a foreign person’’ means any
notice of a transfer of a life insurance
contract (i.e., a transfer of title to,
possession of, or legal ownership of the
life insurance contract) received by a
6050Y(b) issuer (as that term is defined
in § 1.6050Y–1(a)(8)(iii)(B) of the
proposed regulations). See § 1.6050Y–
1(a)(10) of the proposed regulations.
Notice of a transfer to a foreign person
includes information provided for
nontax purposes such as a change of
address notice for purposes of sending
statements or for other purposes, and
information relating to loans, premiums,
or death benefits with respect to the
contract, unless the 6050Y(b) issuer
knows that no transfer of the life
insurance contract has occurred or
knows the transferee is a United States
person. Id. For this purpose, a 6050Y(b)
issuer may rely on a Form W–9, Request
for Taxpayer Identification Number and
Certification, or a valid substitute form,
that meets the requirements of § 1.1441–
1(d)(2) (substituting ‘‘6050Y(b) issuer’’
for ‘‘withholding agent’’), that indicates
the transferee is a United States person.
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The definition of ‘‘issuer’’ under the
proposed regulations depends on the
context in which the term is used. In
general, the term ‘‘issuer’’ means, on
any date, with respect to any interest in
a life insurance contract, any person
that bears any part of the risk with
respect to the life insurance contract on
that date and any person responsible on
that date for administering the contract,
including collecting premiums and
paying death benefits. See § 1.6050Y–
1(a)(8)(i) of the proposed regulations.
For instance, if a reinsurer reinsures on
an indemnity basis all or a portion of
the risks that the original issuer (and
continuing contract administrator)
might otherwise have incurred with
respect to a life insurance contract, both
the reinsurer and the original issuer of
the contract are issuers of the life
insurance contract. Id.
Additionally, any designee of an
issuer for purposes of section 6050Y
reporting purposes is generally also
considered an issuer. See § 1.6050Y–
1(a)(8)(i) of the proposed regulations.
Under § 1.6050Y–1(a)(8)(iv) of the
proposed regulations, a person is the
designee of an issuer for purposes of
section 6050Y reporting under
§ 1.6050Y–1(a)(8) only if so designated
in writing, including electronically. The
designation must be signed and
acknowledged, in writing or
electronically, by the person named as
designee, or that person’s
representative, and by the issuer making
the designation, or a representative of
that issuer.
For purposes of information reporting
by the acquirer under section 6050Y(a)
and § 1.6050Y–2 of the proposed
regulations, the ‘‘6050Y(a) issuer’’ is the
issuer that is responsible for
administering the life insurance
contract, including collecting premiums
and paying death benefits under the
contract, on the date of the reportable
policy sale. See § 1.6050Y–1(a)(8)(ii) of
the proposed regulations.
For purposes of information reporting
by the issuer under section 6050Y(b)
and § 1.6050Y–3 of the proposed
regulations, the definition of ‘‘6050Y(b)
issuer’’ depends on whether the
reporting obligation results from a
reportable policy sale and the receipt of
a RPSS, or by a transfer to a foreign
person and the receipt of notice of a
transfer to a foreign person. See
§ 1.6050Y–1(a)(8)(iii)(A) of the proposed
regulations (applicable to reportable
policy sales) and § 1.6050Y–
1(a)(8)(iii)(B) of the proposed
regulations (applicable to transfers to
foreign persons).
With respect to a life insurance
contract, or an interest therein, that is
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transferred in a reportable policy sale,
the 6050Y(b) issuer is any person that
(1) Receives a RPSS with respect to the
life insurance contract or interest
therein (or, in the case of a designee,
receives notice that the issuer for whom
it serves as designee received a RPSS),
and (2) is or was, on or before the date
of receipt of the RPSS, an issuer (as
defined in § 1.6050Y–1(a)(8)(i) of the
proposed regulations) with respect to
the life insurance contract. See
§ 1.6050Y–1(a)(8)(iii)(A) of the proposed
regulations. More than one person may
meet this definition, but a 6050Y(b)
issuer’s reporting obligation is deemed
satisfied if the information required by
section 6050Y(b) and § 1.6050Y–3 is
timely reported by any other 6050Y(b)
issuer. See § 1.6050Y–3(b) of the
proposed regulations.
With respect to a life insurance
contract transferred to a foreign person,
the 6050Y(b) issuer generally is any
person that (1) Receives notice of the
transfer of the life insurance contract to
a foreign person, and (2) is or was, on
the date of transfer or on the date of
receipt of the notice, an issuer (as
defined in § 1.6050Y–1(a)(8)(i) of the
proposed regulations), with respect to
the life insurance contract. See
§ 1.6050Y–1(a)(8)(iii)(B) of the proposed
regulations. However, a person is not a
6050Y(b) issuer under § 1.6050Y–
1(a)(8)(iii)(B) of the proposed
regulations if (1) That person (or, in the
case of a designee, the issuer for whom
it serves as designee) is not responsible
for administering the life insurance
contract, including collecting premiums
and paying death benefits under the
contract, on the date the notice of a
transfer to a foreign person of a life
insurance contract is received, and (2)
that person, or its designee, provides the
6050Y(b) issuer that is responsible for
administering the life insurance
contract, including collecting premiums
and paying death benefits under the
contract, on that date with such notice
and any available information necessary
to accomplish reporting under section
6050Y(b) and § 1.6050Y–3 of the
proposed regulations. See § 1.6050Y–
1(a)(8)(iii)(B) of the proposed
regulations.
Section 6050Y(c) imposes reporting
requirements on any person that makes
a payment of reportable death benefits
during any taxable year. Section
6050Y(d)(4) defines the term ‘‘reportable
death benefits’’ to mean amounts paid
by reason of the death of the insured
under a life insurance contract that has
been transferred in a reportable policy
sale. The proposed regulations clarify
that the amounts must be attributable to
an interest in the life insurance contract
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that was transferred in a reportable
policy sale. See § 1.6050Y–1(a)(12) of
the proposed regulations. For instance,
if the original policyholder of a life
insurance contract transfers a 50 percent
interest in the life insurance contract in
a reportable policy sale, amounts paid
by reason of the death of the insured
that are attributable to the 50 percent
interest retained by the original
policyholder are not reportable death
benefits.
The proposed regulations define
‘‘payor’’ to mean any person making a
payment of reportable death benefits
and ‘‘reportable death benefits payment
recipient’’ to mean any person that
receives reportable death benefits as a
beneficiary under the life insurance
contract or as the holder of an interest
in the life insurance contract. See
§ 1.6050Y–1(a)(11) and (13) of the
proposed regulations. Comments
received on Notice 2018–41 suggested
that ‘‘payor’’ be defined the same as
‘‘issuer’’ for purposes of section 6050Y.
The proposed regulations do not adopt
this suggestion, but comments are
requested as to whether payor should be
so narrowly defined, or should also
include any holder of an interest in a
life insurance contract that receives
reportable death benefits attributable to
that interest and is contractually
obligated to pay part or all of the
proceeds to the beneficial owner of the
interest. Comments are also requested as
to whether, for purposes of reporting
under section 6050Y(c), reportable
death benefits payment recipients
should include, in addition to any
person that receives reportable death
benefits as a beneficiary under the life
insurance contract, any person that
receives reportable death benefits as the
holder of an interest in the life
insurance contract.
Section 6050Y(b) and § 1.6050Y–3 of
the proposed regulations require issuers
to report the seller’s investment in the
contract to the seller, and section
6050Y(c) and § 1.6050Y–4 of the
proposed regulations require payors to
report the payor’s estimate of the
buyer’s investment in the contract to the
reportable death benefits payment
recipient. The ‘‘buyer,’’ with respect to
any interest in a life insurance contract
that has been transferred in a reportable
policy sale, is the person that was the
most recent acquirer of that interest in
a reportable policy sale as of the date
reportable death benefits are paid under
the contract. See § 1.6050Y–1(a)(2) of
the proposed regulations.
Under the proposed regulations, the
meaning of ‘‘investment in the contract’’
depends on whose investment in the
contract is being determined. With
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respect to the original policyholder of a
life insurance contract, § 1.6050Y–
1(a)(7)(i) of the proposed regulations
provides that ‘‘investment in the
contract’’ has the same meaning as
under section 72(e)(6). With respect to
the original policyholder, the issuer will
have all of the information required to
determine that amount.
With respect to anyone other than the
original policyholder, the issuer or
payor may lack information required to
determine the seller’s or buyer’s
investment in the contract as defined in
section 72(e)(6), such as the aggregate
amount of consideration paid for the
contract and the extent to which
amounts received under the contract
were excludable from gross income. In
this context, § 1.6050Y–1(a)(7)(i) of the
proposed regulations provides that
‘‘investment in the contract’’ has the
same meaning as ‘‘estimate of
investment in the contract.’’ Section
1.6050Y–1(a)(7)(ii) of the proposed
regulations defines ‘‘estimate of
investment in the contract’’ with respect
to any person other than the original
policyholder to mean, on any date, the
aggregate amount of premiums paid for
the contract by that person before that
date, less the aggregate amount received
under the contract by that person before
that date to the extent such information
is known to or can reasonably be
estimated by the issuer or payor.
2. Section 1.6050Y–2: Reporting of
Payments by Acquirer in a Reportable
Policy Sale
Section 6050Y(a) requires reporting of
payments made by an acquirer in a
reportable policy sale. Section 1.6050Y–
2(a) of the proposed regulations sets
forth the requirement of information
reporting applicable to acquirers in
reportable policy sales under section
6050Y(a)(1) and describes the
information that must be reported.
The proposed regulations allow for
unified reporting by the acquirers in a
series of prearranged transfers of any
interest in a life insurance contract. See
§ 1.6050Y–2(b) and (d)(3) of the
proposed regulations. A series of
prearranged transfers of an interest in a
life insurance contract may include
transfers in which one or more persons
serve as intermediaries. Such
intermediaries may acquire title or
possession of an interest in a life
insurance contract for state law
purposes as nominee on behalf of
another person or persons. Comments
received on Notice 2018–41 suggested
that a rule allowing unified reporting be
adopted with respect to acquirers in a
series of prearranged transfers, and
these comments were taken into
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consideration in developing the rules in
the proposed regulations.
Section 1.6050Y–2(c) of the proposed
regulations sets forth the time and place
for filing returns required under section
6050Y(a)(1).
Section 1.6050Y–2(d) of the proposed
regulations sets forth the requirement
under section 6050Y(a)(2) for the
acquirer in a reportable policy sale to
furnish a written statement to certain
persons with respect to whom
information is required on the return
required by section 6050Y(a)(1). These
persons are the recipients of payments
in reportable policy sales (reportable
policy sale payment recipients) and the
6050Y(a) issuers.
A written statement provided to a
reportable policy sale payment recipient
is not required to include information
with respect to any other reportable
policy sale payment recipient in the
reportable policy sale. See § 1.6050Y–
2(d)(1)(i) of the proposed regulations.
For instance, the statement is not
required to provide information about
reportable policy sale payments to any
other reportable policy sale payment
recipient. Id. The contact information of
the person furnishing the written
statement must provide direct access to
a person that can answer questions
about the statement. Id. Reportable
policy sale payment recipients may use
the information in the written
statements furnished by acquirers to
determine their taxable income. To
facilitate proper tax reporting, the
proposed regulations provide that an
acquirer must furnish any written
statement required to be provided to a
reportable policy sale payment recipient
no later than February 15 of the year
following the calendar year in which the
reportable policy sale occurs. See
§ 1.6050Y–2(d)(1)(ii) of the proposed
regulations. The proposed regulations
adopt this deadline because a person
may be both a reportable policy sale
payment recipient and a seller with
respect to a reportable policy sale, and
this deadline for an acquirer to furnish
a written statement to a reportable
policy sale payment recipient
coordinates with the deadline in
§ 1.6050Y–3(d)(2) of the proposed
regulations for a 6050Y(b) issuer that
receives a RPSS to furnish a written
statement to a seller.
Generally, a 6050Y(a) issuer that
receives a RPSS from an acquirer
becomes a 6050Y(b) issuer subject to
reporting obligations under section
6050Y(b), including the obligation
under section 6050Y(b)(2) to furnish a
written statement to the seller in a
reportable policy sale. Because 6050Y(b)
issuers’ reporting obligation is with
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respect to sellers, the proposed
regulations provide that acquirers must
furnish the 6050Y(a) issuer with a RPSS
with respect to each reportable policy
sale payment recipient that is also a
seller. See § 1.6050Y–2(d)(2)(i)(A) of the
proposed regulations. However, an
acquirer acquiring an interest in a life
insurance contract in an indirect
acquisition is not required to furnish a
RPSS to the 6050Y(a) issuer. See
§ 1.6050Y–2(d)(2)(i)(B) of the proposed
regulations. As provided in section
6050Y(a)(2)(B), the proposed regulations
provide that acquirers are not required
to set forth the amount of any reportable
policy sale payment in a RPSS
furnished to a 6050Y(a) issuer. See
§ 1.6050Y–2(d)(2)(i)(A) of the proposed
regulations. Sellers may need the
information in the written statements
furnished by 6050Y(b) issuers that have
received a RPSS to determine their
taxable income. To facilitate proper tax
reporting, the proposed regulations
therefore provide that an acquirer must
furnish a RPSS to the 6050Y(a) issuer by
the later of (1) 20 days after the
reportable policy sale, or (2) 5 days after
the end of the applicable state law
rescission period. See § 1.6050Y–
2(d)(2)(ii) of the proposed regulations.
However, if the later date is after
January 15 of the year following the
calendar year in which the reportable
policy sale occurred, the RPSS must be
furnished by January 15 of the year
following the calendar year in which the
reportable policy sale occurred. Id.
Section 1.6050Y–3(d)(2) of the proposed
regulations generally requires that the
6050Y(b) issuer furnish any written
statement required by section
6050Y(b)(2) to the seller no later than
February 15 of the year following the
calendar year in which the reportable
policy sale occurs.
Section 1.6050Y–2(e) of the proposed
regulations requires the acquirer to
correct returns filed under section
6050Y(a)(1) and written statements
furnished under section 6050Y(a)(2)
within 15 days of the acquirer’s receipt
of notice of the rescission of the related
reportable policy sale.
Section 1.6050Y–2(f) of the proposed
regulations sets forth exceptions to
reporting under section 6050Y(a) that
may apply to an acquirer that is a
foreign person. These exceptions are
described in section 5 of this
Explanation of Provisions.
Section 1.6050Y–2(g) of the proposed
regulations describes the penalty
provisions applicable when a person is
required under section 6050Y(a) to file
an information return, or furnish a
written statement, but fails to do so on
or before the prescribed date, fails to
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11013
include all of the information required
to be shown, or includes incorrect
information.
3. Section 1.6050Y–3: Reporting of
Transferor’s Investment in the Contract
by 6050Y(b) Issuer (Reportable Policy
Sale or Transfer to a Foreign Person)
Section 6050Y(b) requires the issuer
to report certain information to the
seller, including the seller’s investment
in the contract. Section 1.6050Y–3(a) of
the proposed regulations sets forth the
information reporting requirement
applicable to 6050Y(b) issuers under
section 6050Y(b)(1). In addition to the
specific information required to be
reported under section 6050Y(b)(1),
Notice 2018–41 indicated that the
proposed regulations would require the
issuer to report the amount that would
have been received by the policyholder
upon surrender of the contract. A
comment received on Notice 2018–41
suggested that an issuer should not be
required to report this amount because
the information may be provided
directly by the issuer to the seller upon
request.
A purpose of section 6050Y is to
provide the seller in a reportable policy
sale and the IRS with the information
needed to determine the seller’s taxable
income from the sale. In the case of a
sale of a cash value life insurance
contract, the gain is ordinary income to
the extent of the amount that would be
recognized as ordinary income if the
contract were surrendered, and any
excess is capital gain. See Rev. Rul.
2009–13, 2009–21 I.R.B. 1029. To
ensure that the seller and the IRS have
the relevant information needed to
calculate the seller’s gain from the sale,
including the amount of any capital or
ordinary gain, the proposed regulations
do not adopt the suggestion and would
require the 6050Y(b) issuer to report to
the seller and the IRS the amount that
would have been received by the
policyholder upon surrender of the
contract. The Treasury Department and
the IRS have determined that requiring
the reporting of this information is
authorized under section 6050Y(b)(1), as
well as under sections 6011(a) and 7805.
Section 1.6050Y–3(b) of the proposed
regulations provides that a 6050Y(b)
issuer’s reporting obligation under
section 6050Y(b) and § 1.6050Y–3(a) is
deemed satisfied if the information
required by section 6050Y(b) and
§ 1.6050Y–3 is timely reported by any
other 6050Y(b) issuer or a third party
information reporting contractor.
Section 1.6050Y–3(c) of the proposed
regulations sets forth the time and place
for filing returns required under section
6050Y(b)(1).
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Section 1.6050Y–3(d)(1) of the
proposed regulations sets forth the
requirement under section 6050Y(b)(2)
to furnish statements to certain persons
with respect to whom information is
required on the return required by
section 6050Y(b)(1). These persons are
the sellers that (1) Transfer interests in
life insurance contracts in reportable
policy sales and are reportable policy
sale payment recipients, or (2) transfer
life insurance contracts to foreign
persons. The sellers may use the
information in the written statements
furnished under section 6050Y(b)(2) to
determine their taxable income.
To facilitate proper tax reporting,
§ 1.6050Y–2(d)(2)(ii) of the proposed
regulations requires acquirers to furnish
a RPSS to the 6050Y(a) issuer by
January 15 of the year following the
calendar year in which the reportable
policy sale occurred, if not earlier, and
§ 1.6050Y–3(d)(2) of the proposed
regulations provides that a 6050Y(b)
issuer generally must furnish any
written statement required to be
provided to a seller no later than
February 15 of the year following the
calendar year in which the reportable
policy sale or transfer to a foreign
person occurs. Comments received on
Notice 2018–41 suggested that issuers
be required to furnish written
statements required by section
6050Y(b)(2) to the seller no later than
February 15 of the year following the
calendar year in which the reportable
policy sale occurs, noting that this is
currently the due date for section 6045
broker returns and consolidated
statements, and brokers also rely on
third party information (e.g., dividend
reclassifications). The Treasury
Department and the IRS propose to
adopt this suggestion. See § 1.6050Y–
3(d)(2) of the proposed regulations.
Section 1.6050Y–3(d)(3) of the proposed
regulations provides that a 6050Y(b)
issuer’s reporting obligation is deemed
satisfied if the information required by
§ 1.6050Y–3(d)(1) of the proposed
regulations with respect to that
6050Y(b) issuer is timely reported on
behalf of that 6050Y(b) issuer consistent
with forms, instructions, and other IRS
guidance by one or more other 6050Y(b)
issuers or by a third party information
reporting contractor.
Section 1.6050Y–3(e) of the proposed
regulations requires the 6050Y(b) issuer
to correct returns filed under section
6050Y(b)(1) and written statements
furnished under section 6050Y(b)(2)
within 15 days of the 6050Y(b) issuer’s
receipt of notice of the rescission of the
related reportable policy sale or transfer
to a foreign person.
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Section 1.6050Y–3(f) of the proposed
regulations sets forth exceptions to
reporting under section 6050Y(b) that
may apply to 6050Y(b) issuers. These
exceptions are described in section 5 of
this Explanation of Provisions.
Section 1.6050Y–3(g) of the proposed
regulations describes the penalty
provisions applicable when a person is
required under section 6050Y(b) to file
an information return, or furnish a
written statement, but fails to do so on
or before the prescribed date, fails to
include all of the information required
to be shown, or includes incorrect
information.
4. Section 1.6050Y–4: Reporting of
Reportable Death Benefits by Payor
Section 6050Y(c) requires payors to
report payments of reportable death
benefits. Section 1.6050Y–4(a) of the
proposed regulations sets forth the
requirement of information reporting
applicable to payors under section
6050Y(c)(1).
Section 1.6050Y–4(b) of the proposed
regulations sets forth the time and place
for filing returns required under section
6050Y(c)(1).
Section 1.6050Y–4(c)(1) of the
proposed regulations sets forth the
requirement under section 6050Y(c)(2)
to furnish statements to persons with
respect to whom information is required
on the return required by section
6050Y(c)(1). These persons are the
recipients of reportable death benefits
(reportable death benefits payment
recipients). The reportable death
benefits payment recipients may use the
information in the written statements
furnished under section 6050Y(c)(2) to
determine their taxable income. To
facilitate proper tax reporting,
§ 1.6050Y–4(c)(2) of the proposed
regulations provides that a payor must
furnish any written statement required
to be provided to a reportable death
benefits payment recipient no later than
January 31 of the year following the
calendar year in which the reportable
policy sale occurs. The proposed
regulations use January 31 because it is
generally the deadline for furnishing
copies of Form 1099–R to recipients.
Section 1.6050Y–4(d) of the proposed
regulations requires the payor to correct
returns filed under section 6050Y(c)(1)
and written statements furnished under
section 6050Y(c)(2) within 15 days of
the payor’s receipt of notice of the
rescission of the related reportable
policy sale.
Section 1.6050Y–4(e) of the proposed
regulations sets forth exceptions to
reporting under section 6050Y(c) that
may apply to payors. These exceptions
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are described in the next section of this
Explanation of Provisions.
Section 1.6050Y–4(f) of the proposed
regulations describes the penalty
provisions applicable when a person is
required under section 6050Y(c) to file
an information return, or furnish a
written statement, but fails to do so on
or before the prescribed date, fails to
include all of the information required
to be shown, or includes incorrect
information.
5. Exceptions To Reporting Under
Section 6050Y
The proposed regulations include
certain exceptions to the reporting
requirements otherwise imposed on
acquirers, 6050Y(b) issuers, and payors
under §§ 1.6050Y–2, –3, and –4 of the
proposed regulations, respectively.
These exceptions to reporting are
similar in their intended purposes to
exceptions included in regulations
issued under other sections in chapter
61 that except reporting by certain
payors and brokers (as applicable based
on the section) with respect to a
transaction occurring outside the United
States when no nexus of the transaction
to the United States is identified (under
criteria specified in each of the
regulations). For example, § 1.6045–1
generally requires brokers to report the
proceeds of certain sales (such as sales
of securities) on a Form 1099–B,
Proceeds from Broker and Barter
Exchange Transactions, but includes an
exception to the term ‘‘broker’’ that
applies to most non-U.S. securities
brokers for sales that are effected
outside of the United States within the
meaning provided in those regulations.
See § 1.6045–1(a) and (g)(3)(iii).
Reporting of payments under several of
the sections in chapter 61 is also
excepted when a payor or broker is
permitted to treat the person receiving
the payments as a foreign person. For
certain of those excepted payments,
withholding and reporting requirements
may instead apply under chapter 3 of
subtitle A of the Code.
Sections 1.6050Y–2(f) and 1.6050Y–
3(f)(2) of the proposed regulations
describe exceptions to the reporting
otherwise required of an acquirer and
6050Y(b) issuer under section 6050Y(a)
or (b), respectively, for cases in which
the Treasury Department and the IRS
are of the view that a nexus of the sale
or life insurance contract to the United
States is insufficient for applying the
reporting provisions of those sections.
Sections 1.6050Y–3(f)(1) and
1.6050Y–4(e)(1) of the proposed
regulations provide that reporting under
section 6050Y(b) or (c) is not required
by 6050Y(b) issuers and payors with
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respect to sellers or reportable death
benefits payment recipients,
respectively, documented as foreign
beneficial owners under the
requirements of the regulations under
section 1441. The proposed regulations
include, however, two modifications to
those requirements. First, §§ 1.6050Y–
3(f)(1) and 1.6050Y–4(e)(1) of the
proposed regulations permit a 6050Y(b)
issuer or payor to treat a partnership or
trust as a foreign beneficial owner
provided that the 6050Y(b) issuer or
payor obtains a written certification
from the partnership or trust that no
beneficial owner (within the meaning of
§ 1.1441–1(c)(6)(ii)) of any portion of the
sales proceeds or reportable death
benefits payment (as applicable based
on the section) received by the
partnership or trust is a United States
person, as well as documentation
establishing the partnership’s or trust’s
foreign status. The treatment described
in the preceding sentence does not
apply, however, when the issuer or
payor has actual knowledge that a
United States person is a beneficial
owner of all or a portion of the sale
proceeds or reportable death benefit
payment. Second, § 1.6050Y–3(f)(1) of
the proposed regulations provides that
this exception does not apply to a
foreign beneficial owner for which the
sale of the insurance contract (or
interest therein) results in a requirement
to report any of the income from the sale
as effectively connected with a U.S.
trade or business. To address those
cases, the proposed regulations provide
that a seller required to report any of the
income from the sale of an insurance
contract (or interest therein) as
effectively connected with the conduct
of a trade or business in the United
States under section 864(b) must
provide to the 6050Y(b) issuer a Form
W–8ECI, Certificate of Foreign Person’s
Claim that Income is Effectively
Connected with the Conduct of a Trade
or Business in the United States. The
proposed regulations do not permit a
6050Y(b) issuer to apply the exception
when it receives a Form W–8ECI from
a seller or has reason to know that the
seller is required to report any of the
sale proceeds as income effectively
connected with a U.S. trade or business.
Similar provisions apply with respect to
foreign beneficial owners of reportable
death benefits under § 1.6050Y–4(e)(1)
of the proposed regulations. However,
in response to comments received on
Notice 2018–41, the Treasury
Department and the IRS are considering
whether payors required under section
6050Y(c) and § 1.6050Y–4(e)(1) of the
proposed regulations to report payments
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of reportable death benefits that are
income effectively connected with a
U.S. trade or business may satisfy their
reporting obligation under section
6050Y(c) by filing a Form 1042–S,
Foreign Person’s U.S. Source Income
Subject to Withholding, or if such
payors may be relieved from the
obligation to report some of the
information required to be reported
under section 6050Y(c).
Section 1.6050Y–4(e)(2) of the
proposed regulations also includes a
reporting exception for death benefits
paid under an insurance contract (or
interest therein) held by a buyer that
obtained the contract or interest in a
reportable policy sale that was within
an exception to reporting described in
§ 1.6050Y–3(f)(2) of the proposed
regulations. The exception to reporting
described in § 1.6050Y–3(f)(2) of the
proposed regulations applies in those
cases in which a 6050Y(b) issuer
received only a notice of transfer to a
foreign person and, because the
requirements set forth in § 1.6050Y–
3(f)(2)(i) through (iii) of the proposed
regulations were met, was not required
to treat the transfer as reportable for
purposes of section 6050Y(b).
6. Section 1.101–1: Exclusion From
Gross Income of Proceeds of Life
Insurance Contracts Payable by Reason
of Death
Generally, amounts received under a
life insurance contract that are paid by
reason of the death of the insured are
excluded from federal income tax under
section 101(a)(1). However, if a life
insurance contract is sold or otherwise
transferred for valuable consideration,
the ‘‘transfer for value rule’’ set forth in
section 101(a)(2) limits the excludable
portion of the amount paid by reason of
the death of the insured. Section
101(a)(2) provides that the excludable
amount following a transfer for valuable
consideration generally may not exceed
the sum of (1) The actual value of the
consideration paid by the transferee to
acquire the life insurance contract and
(2) the premiums and other amounts
subsequently paid by the transferee.
Section 101(a)(2) provides two
exceptions to this transfer for value rule.
Specifically, the limitation set forth in
section 101(a)(2) does not apply if (1)
The transferee’s basis in the contract is
determined in whole or in part by
reference to the transferor’s basis in the
contract or (2) the transfer is to the
insured, to a partner of the insured, to
a partnership in which the insured is a
partner, or to a corporation in which the
insured is a shareholder or officer.
Section 13522 of the Act added
section 101(a)(3) to the Code. Section
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101(a)(3)(A) provides that these two
exceptions shall not apply in the case of
a transfer of a life insurance contract, or
any interest therein, that is a reportable
policy sale. Section 101(a)(3)(B) defines
the term ‘‘reportable policy sale’’ to
mean the acquisition of an interest in a
life insurance contract, directly or
indirectly, if the acquirer has no
substantial family, business, or financial
relationship with the insured apart from
the acquirer’s interest in such life
insurance contract. For purposes of the
preceding sentence, the term
‘‘indirectly’’ applies to the acquisition of
an interest in a partnership, trust, or
other entity that holds an interest in the
life insurance contract.
The proposed regulations update
§ 1.101–1(a)(1) of the existing
regulations to reflect the repeal of
section 101(b) (treatment of employees’
death benefits) in 1996, and the addition
of section 7702 (definition of life
insurance contract) in 1984, section
101(j) (treatment of certain employerowned life insurance contracts) in 2006,
and section 101(a)(3) (exception to
valuable consideration rules for
reportable policy sales) in 2017. The
proposed regulations remove the second
and third sentences of § 1.101–1(a)(1) of
the existing regulations and add a
sentence at the end of § 1.101–1(a)(1) to
address the earlier changes in law. To
address the changes in law made by the
Act, the proposed regulations under
section 101 provide updated rules for
determining the amount of death
benefits excluded from gross income
following a transfer for value or
gratuitous transfer, including a
reportable policy sale, and provide
definitions applicable under section
101. The proposed regulations under
section 6050Y adopt the relevant
definitions by cross-reference.
The proposed regulations provide that
any transfer of an interest in a life
insurance contract for cash or other
consideration reducible to a money
value is a transfer for valuable
consideration. See § 1.101–1(f)(5) of the
proposed regulations; see also
§ 25.2512–8 (‘‘[a] consideration not
reducible to a value in money or
money’s worth, as love and affection,
promise of marriage, etc., is to be wholly
disregarded’’). An interest in a life
insurance contract (also referred to as a
life insurance policy) is held by any
person that has taken title to or
possession of the life insurance contract,
in whole or part, for state law purposes,
including any person that has taken title
or possession as nominee for another
person, or by any person that has an
enforceable right to receive all or a part
of the proceeds of the life insurance
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contract or to any other economic
benefits of the insurance policy as
described in § 20.2042–1(c)(2). See
§ 1.101–1(e)(1) of the proposed
regulations. The enforceable right to
designate a contract beneficiary is an
interest in a life insurance contract. Id.
Any person named as the owner in a life
insurance contract generally is the
owner (or an owner) of the contract and
holds an interest in the contract. Id.
The transfer of an interest in a life
insurance contract includes the transfer
of any interest in the life insurance
contract as well as any transfer of the
life insurance contract itself (meaning a
transfer of title to, possession of, or legal
or beneficial ownership of the life
insurance contract). See § 1.101–1(e)(2)
of the proposed regulations. For
instance, the creation of an enforceable
right to receive all or a part of the
proceeds of a life insurance contract
constitutes the transfer of an interest in
the life insurance contract. Id. However,
the revocable designation of a
beneficiary of the policy proceeds does
not constitute a transfer of an interest in
a life insurance contract to the
beneficiary until the designation
becomes irrevocable other than by
reason of the death of the insured. Id.
For purposes of this rule, a beneficiary
designation is not revocable if the
person with the right to designate the
beneficiary of the contract has an
enforceable contractual obligation to
designate a particular contract
beneficiary. The pledging or assignment
of a policy as collateral security also is
not a transfer of an interest in a life
insurance contract. Id. In response to
comments received on Notice 2018–41
suggesting that the initial owner of a life
insurance contract should not be
considered an ‘‘acquirer’’ for purposes
of section 6050Y(a), § 1.101–1(e)(2) of
the proposed regulations clarifies that
the issuance of a life insurance contract
to a policyholder, other than the
issuance of a policy in an exchange
pursuant to section 1035, is not a
transfer of an interest in a life insurance
contract.
Section 1.101–1(b)(1)(i) of the
proposed regulations provides that, in
the case of a transfer of an interest in a
life insurance contract for valuable
consideration, the amount of the
proceeds attributable to the interest that
is excludable from gross income under
section 101(a)(1) is limited under
section 101(a)(2) to the sum of the actual
value of the consideration for the
transfer paid by the transferee and the
premiums and other amounts
subsequently paid by the transferee with
respect to that interest. Consistent with
section 101(a)(3), this general rule
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applies to all transfers of interests in life
insurance contracts for valuable
consideration that are reportable policy
sales. Consistent with section 101(a)(2),
this general rule also continues to apply
to transfers of interests in life insurance
contracts for valuable consideration that
are not reportable policy sales, unless an
exception set forth in section 101(a)(2)
applies. See § 1.101–1(b)(1)(i) and (ii) of
the proposed regulations. Section
1.101–1(b)(1)(ii)(A) of the proposed
regulations applies to carryover basis
transfers that are not also subject to
§ 1.101–1(b)(1)(ii)(B) of the proposed
regulations. Section 1.101–1(b)(1)(ii)(B)
of the proposed regulations applies to
transfers to certain persons.
Under § 1.101–1(b)(1)(ii)(A) of the
proposed regulations, the limitation
described in section 101(a)(2) and
§ 1.101–1(b)(1)(i) of the proposed
regulations does not apply to the
transfer of an interest in a life insurance
contract for valuable consideration if (1)
The transfer is not a reportable policy
sale, (2) the basis of the interest
transferred, for the purpose of
determining gain or loss with respect to
the transferee, is determinable in whole
or in part by reference to the basis of
that interest in the hands of the
transferor, and (3) § 1.101–1(b)(1)(ii)(B)
of the proposed regulations does not
apply to the transfer. The amount of the
proceeds attributable to the interest that
is excludable from gross income under
section 101(a)(1) is, however, limited to
the sum of (1) The amount that would
have been excludable by the transferor,
and (2) the premiums and other
amounts subsequently paid by the
transferee.
This limitation applies without regard
to whether the interest previously has
been transferred or to the nature of any
prior transfer of the interest. For
instance, it is irrelevant whether a prior
transfer was gratuitous or for value,
whether section 101(a)(2)(A) or (B)
applied to a prior transfer, whether any
prior transfer was a reportable policy
sale, or whether the prior transfer was
of the same interest or a larger interest
in a life insurance contract that
included the same interest. If the full
amount of the proceeds would have
been excludable by the transferor, as
would generally be the case if the
original policyholder is the transferor,
§ 1.101–1(b)(1)(ii)(A) of the proposed
regulations will, as a practical matter,
impose no limitation on the amount of
the proceeds attributable to the interest
that is excludable from gross income
under section 101(a)(1).
Under § 1.101–1(b)(1)(ii)(B)(1) of the
proposed regulations, the limitation on
the excludable amount of the proceeds
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described in section 101(a)(2) and
§ 1.101–1(b)(1)(i) of the proposed
regulations will not apply to an interest
in a life insurance contract that is
transferred for valuable consideration if
(1) The transfer is not a reportable
policy sale and the interest was not
previously transferred for valuable
consideration in a reportable policy
sale, and (2) the transfer is to the
insured, a partner of the insured, a
partnership in which the insured is a
partner, or a corporation in which the
insured is a shareholder or officer (a
(B)(1) person).
Under § 1.101–1(b)(1)(ii)(B)(2) of the
proposed regulations, if a transfer of an
interest in a life insurance contract to a
(B)(1) person follows a transfer for
valuable consideration in a reportable
policy sale (whether in the immediately
preceding transfer or an earlier transfer),
the amount of the proceeds attributable
to that interest that is excludable from
gross income under section 101(a)(1) is
limited to the sum of (1) The higher of
the amount that would have been
excludable by the transferor if the
transfer to the (B)(1) person had not
occurred or the actual value of the
consideration for the transfer to the
(B)(1) person paid by the (B)(1) person,
and (2) the premiums and other
amounts subsequently paid by the
transferee. Thus, in determining the
excludable amount of the proceeds
attributable to an interest in a life
insurance contract that is transferred to
a (B)(1) person in a transfer that is not
a reportable policy sale, the limitation
described in section 101(a)(2) and
§ 1.101–1(b)(1)(i) of the proposed
regulations is inapplicable unless the
interest previously had been transferred
in a reportable policy sale. Additionally,
because of the alternative in the formula
for computing the limitation, a (B)(1)
person will not be subject to a less
favorable limitation than the limitation
applicable to a transferee in a carryover
basis transfer eligible for the exception
set forth in § 1.101–1(b)(1)(ii)(A) of the
proposed regulations.
The proposed regulations provide a
single rule applicable to all gratuitous
transfers of interests in life insurance
contracts, including reportable policy
sales that are not for valuable
consideration: the amount of the
proceeds attributable to the interest that
is excludable from gross income under
section 101(a)(1) is limited to the sum
of (1) The amount of the proceeds
attributable to the gratuitously
transferred interest that would have
been excludable by the transferor if the
transfer had not occurred, and (2) the
premiums and other amounts
subsequently paid by the transferee. See
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§ 1.101–1(b)(2)(i) of the proposed
regulations. Although § 1.101–1(b)(2) of
the existing regulations provides a
special rule for gratuitous transfers
made by or to the insured, a partner of
the insured, a partnership in which the
insured is a partner, or a corporation in
which the insured is a shareholder or
officer, such a rule is not required by
section 101(a), and the proposed
regulations do not contain a special rule
for these transfers because it could be
subject to abuse.
Section 1.101–1(b)(3) of the proposed
regulations clarifies that, for purposes of
§ 1.101–1(b)(1) and (2) of the proposed
regulations, in determining the
amounts, if any, of consideration paid
by the transferee for the transfer of an
interest in a life insurance contract and
premiums and other amounts
subsequently paid by the transferee with
respect to that interest, the amounts
paid by the transferee are reduced, but
not below zero, by amounts received by
the transferee under the life insurance
contract that are not received as an
annuity, to the extent excludable from
gross income under section 72(e). This
provision is necessary to prevent an
exclusion from gross income based on a
double-counting of consideration paid.
Section 1.101–1(c) of the proposed
regulations defines the term ‘‘reportable
policy sale,’’ which was introduced in
section 101(a)(3). The proposed
regulations provide that, as a general
matter, any direct or indirect acquisition
of an interest in a life insurance contract
is a ‘‘reportable policy sale’’ if the
acquirer has, at the time of the
acquisition, no substantial family,
business, or financial relationship with
the insured apart from the acquirer’s
interest in that life insurance contract.
See § 1.101–1(c)(1) of the proposed
regulations.
Under § 1.101–1(e)(3)(i) of the
proposed regulations, the transfer of an
interest in a life insurance contract
results in the direct acquisition of the
interest by the transferee (acquirer).
Under § 1.101–1(e)(3)(ii) of the proposed
regulations, an indirect acquisition of an
interest in a life insurance contract
occurs when a person (acquirer)
becomes a beneficial owner of a
partnership, trust, or other entity that
holds (directly or indirectly) an interest
in the life insurance contract. For this
purpose, the term ‘‘other entity’’ does
not include a C corporation (as that term
is defined in section 1361(a)(2)), unless
more than 50 percent of the gross value
of the assets of the C corporation (as
determined under § 1.101–1(f)(4))
consists of life insurance contracts
immediately before the indirect
acquisition. Under § 1.101–1(f)(1) of the
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proposed regulations, a ‘‘beneficial
owner’’ of a partnership, trust, or other
entity is an individual or C corporation
with an ownership interest in that
partnership, trust, or other entity. The
beneficial owner’s interest may be held
directly or indirectly, through one or
more other partnerships, trusts, or other
entities.
Accordingly, under § 1.101–1(e)(3)(ii)
of the proposed regulations, persons
that acquire shares in a C corporation
that holds an interest in a life insurance
contract generally will not be
considered to have an indirect
acquisition of an interest in such
contract. However, if the C corporation
primarily owns life insurance contracts
(or interests therein), any person that
acquires shares in the C corporation will
be considered to have an indirect
acquisition of an interest in any life
insurance contract held by the C
corporation.
Section 1.101–1(d) of the proposed
regulations defines the terms
‘‘substantial family relationship,’’
‘‘substantial business relationship,’’ and
‘‘substantial financial relationship.’’
Under section 1.101–1(d)(1) of the
proposed regulations, a ‘‘substantial
family relationship’’ is the relationship
between an individual and any family
member of that individual as defined in
§ 1.101–1(f)(3) of the proposed
regulations. A substantial family
relationship also exists between an
individual and his or her former spouse
with regard to a transfer of an interest
in a life insurance contract to (or in trust
for the benefit of) that former spouse
incident to divorce. See § 1.101–1(d)(1)
of the proposed regulations.
Additionally, a substantial family
relationship exists between the insured
and an entity if all of the entity’s
beneficial owners have a substantial
family relationship with the insured. Id.
Section 1.101–1(d)(2) describes the
two situations in which a substantial
business relationship exists between the
acquirer and insured: (1) The insured is
a key person (as defined in section 264)
of, or materially participates (as defined
in section 469 and the corresponding
regulations) in, an active trade or
business as an owner, employee, or
contractor, and at least 80% of that trade
or business is owned (directly or
indirectly, through one or more
partnerships, trusts, or other entities) by
the acquirer or the beneficial owners of
the acquirer, and (2) the acquirer
acquires an active trade or business and
acquires the interest in the life
insurance contract either as part of that
acquisition or from a person owning
significant property leased to the
acquired trade or business or life
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11017
insurance policies held to facilitate the
succession of the ownership of the
business, if certain requirements are
met. See § 1.101–1(d)(2)(i) and (ii) of the
proposed regulations.
Comments received on Notice 2018–
41 suggested that acquisitions of life
insurance contracts, or interests therein,
in certain ordinary course business
transactions involving the acquisition of
a trade or business should not be
considered reportable policy sales,
including ordinary course business
transactions whereby one trade or
business acquires another trade or
business that owns life insurance on the
lives of former employees or directors.
The definition of substantial business
relationship in § 1.101–1(d)(2) of the
proposed regulations, as well as certain
other provisions in the proposed
regulations, are intended to exclude
certain of these transactions from the
definition of reportable policy sales.
Section 1.101–1(d)(3) of the proposed
regulations describes the three
situations in which a substantial
financial relationship exists between the
insured and the acquirer: (1) The
acquirer (directly or indirectly, through
one or more partnerships, trusts, or
other entities of which it is a beneficial
owner) has, or the beneficial owners of
the acquirer have, a common investment
(other than the interest in the life
insurance contract) with the insured
and a buy-out of the insured’s interest
in the common investment by the coinvestor(s) after the insured’s death is
reasonably foreseeable; (2) the acquirer
maintains the life insurance contract on
the life of the insured to provide funds
to purchase assets or satisfy liabilities
following the death of the insured; or (3)
the acquirer is an organization described
in sections 170(c), 2055(a), and 2522(a)
that previously received financial
support in a substantial amount or
significant volunteer support from the
insured. See § 1.101–1(d)(3)(i) through
(iii) of the proposed regulations.
The proposed regulations also specify
that the fact that an acquirer is a partner
of the insured, a partnership in which
the insured is a partner, or a corporation
in which the insured is a shareholder or
officer (all relationships that are covered
by an exception from the transfer for
value rule) is not sufficient to establish
a substantial business or financial
relationship, nor is such status required
to establish a substantial business or
financial relationship. See § 1.101–
1(d)(4)(ii) of the proposed regulations.
The proposed regulations also clarify
that, for purposes of determining
whether the acquirer in an indirect
acquisition of an interest in a life
insurance contract has a substantial
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business or financial relationship with
the insured, the acquirer will be deemed
to have a substantial business or
financial relationship with the insured
if the direct holder of the interest in the
life insurance contract has a substantial
business or financial relationship with
the insured immediately before and
after the date the acquirer acquires its
interest. See § 1.101–1(d)(4)(i) of the
proposed regulations. Accordingly, the
acquirer in an indirect acquisition may
establish a substantial business or
financial relationship with the insured
based on the acquirer’s own relationship
with the insured or the relationship
between the insured and the direct
holder of the interest in the life
insurance contract.
The proposed regulations also provide
several exceptions from the definition of
reportable policy sale. The proposed
regulations provide that the transfer of
an interest in a life insurance contract
between certain related entities is not a
reportable policy sale. Specifically, a
transfer between entities with the same
beneficial owners is not a reportable
policy sale if the ownership interest of
each beneficial owner in each entity
does not vary by more than a 20 percent
ownership interest. See § 1.101–
1(c)(2)(i) and (g)(10) of the proposed
regulations. Also, a transfer between
corporations that are members of an
affiliated group (as defined in section
1504(a)) that files a consolidated U.S.
tax return for the taxable year in which
the transfer occurs is not a reportable
policy sale. See § 1.101–1(c)(2)(ii) of the
proposed regulations.
Finally, in response to comments
received on Notice 2018–41, certain
indirect acquisitions of life insurance
contracts, or interests in life insurance
contracts, are excepted from the
definition of a reportable policy sale.
The limited definition of ‘‘indirect
acquisition’’ under § 1.101–1(e)(3)(ii) of
the proposed regulations means that
shareholders acquiring an interest in a
C corporation that holds an interest in
one or more life insurance contracts will
not be considered to have an indirect
acquisition or reportable policy sale
unless the C corporation primarily owns
life insurance contracts (or interests
therein). The proposed regulations also
provide an exception from the
definition of a reportable policy sale for
an indirect acquisition of an interest in
a life insurance contract if the direct
holder of the interest acquired the
interest in a reportable policy sale and
reported the acquisition in compliance
with section 6050Y(a) and § 1.6050Y–2
of the proposed regulations. See
§ 1.101–1(c)(2)(iii)(A) of the proposed
regulations. Also, the indirect
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acquisition of an interest in a life
insurance contract is not a reportable
policy sale if (1) Immediately before the
acquisition, no more than 50 percent of
the gross value of the assets of the entity
that directly holds the interest in the life
insurance contract consists of life
insurance contracts, and (2) the acquirer
and his or her family members own five
percent or less of the ownership
interests in the entity that directly holds
the interest in the life insurance
contract. See § 1.101–1(c)(2)(iii)(B) of
the proposed regulations. Section
1.101–1(f)(4) of the proposed regulations
provides rules regarding the
determination of the gross value of
assets for this purpose.
Applicability Dates
The rules in § 1.101–1(b) through (g)
of the proposed regulations are
proposed to apply, for purposes of
section 6050Y, to reportable policy sales
made after December 31, 2017, and to
reportable death benefits paid after
December 31, 2017. For any other
purpose, § 1.101–1(b) through (g) of the
proposed regulations apply to transfers
of life insurance contracts, or interests
therein, made after the date the Treasury
decision adopting these regulations as
final regulations is published in the
Federal Register.
The rules in § 1.6050Y–1 of the
proposed regulations are proposed to
apply to reportable policy sales made
and reportable death benefits paid after
December 31, 2017. The rules in
§§ 1.6050Y–2 and 1.6050Y–3 are
proposed to apply to reportable policy
sales made after December 31, 2017. The
rules in § 1.6050Y–4 are proposed to
apply to reportable death benefits paid
after December 31, 2017. See § 1.6050Y–
1(b) of the proposed regulations.
For reportable policy sales and
payments of reportable death benefits
occurring after December 31, 2017, and
before the date final regulations are
published in the Federal Register,
§ 1.6050Y–1(b) of the proposed
regulations would provide transition
relief as follows:
1. With respect to reportable policy
sales occurring after December 31, 2017,
and before the date final regulations are
published in the Federal Register,
statements required to be furnished to
issuers under section 6050Y(a)(2) must
be furnished by the later of the
applicable deadline set forth in final
regulations or 60 days after the date
final regulations are published in the
Federal Register;
2. With respect to reportable policy
sales occurring after December 31, 2017,
and before the date final regulations are
published in the Federal Register,
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returns required to be filed under
section 6050Y(a)(1) and (b)(1) and
statements required to be furnished to
payment recipients and sellers under
section 6050Y(a)(2) and (b)(2) must be
filed or furnished by the later of the
applicable deadline set forth in final
regulations or 90 days after the date
final regulations are published in the
Federal Register; and
3. With respect to payments of
reportable death benefits paid after
December 31, 2017, and before the date
final regulations are published in the
Federal Register, returns required to be
filed under section 6050Y(c)(1) and
statements required to be furnished to
payment recipients under section
6050Y(c)(2) must be filed or furnished
by the later of the applicable deadline
set forth in final regulations or 90 days
after the date final regulations are
published in the Federal Register.
Special Analyses
The proposed regulations are not
subject to review under section 6(b) of
Executive Order 12866 pursuant to the
Memorandum of Agreement (April 11,
2018) between the Treasury Department
and the Office of Management and
Budget regarding review of tax
regulations.
When the IRS issues a proposed
rulemaking imposing a requirement on
small entities, the Regulatory Flexibility
Act (RFA) requires the agency to
‘‘prepare and make available for public
comment an initial regulatory flexibility
analysis,’’ which will ‘‘describe the
impact of the proposed rule on small
entities.’’ 5 U.S.C. 603(a). Section 605(b)
of the RFA allows an agency to certify
a rule, in lieu of preparing an analysis,
if the proposed rulemaking is not
expected to have a significant economic
impact on a substantial number of small
entities.
Pursuant to the RFA, it is hereby
certified that the proposed regulations
will not have a significant economic
impact on a substantial number of small
entities. Section 13520 of the Act added
section 6050Y to chapter 61
(Information and Returns) of the Code.
Section 6050Y imposes information
reporting obligations related to certain
life insurance contract transactions,
including reportable policy sales and
payments of reportable death benefits.
Section 6050Y provides that each of the
returns required by section 6050Y is to
be made ‘‘at such time and in such
manner as the Secretary shall
prescribe.’’ The proposed regulations
under section 6050Y would implement
section 6050Y by specifying the manner
in which and time at which the
information reporting obligations must
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be satisfied. Accordingly, because the
regulations are limited in scope to time
and manner of information reporting
and definitional information, the
economic impact of the proposal is
expected to be minimal. In addition, the
IRS and Treasury expect that the
reporting burden will fall primarily on
financial and insurance firms with
annual receipts greater than $38.5
million (see 13 CFR 121.201, sector 52
(finance and insurance)). Therefore,
because the Commissioner of the IRS
hereby certifies that the proposed
regulations will not have a significant
economic impact on a substantial
number of small entities, a regulatory
flexibility analysis is not required. The
Treasury Department and the IRS
request comments on the accuracy of
this statement. Pursuant to section
7805(f) of the Code, this notice of
proposed rulemaking will be submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for
comment on its impact on small
entities.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
comments that are submitted timely to
the IRS as prescribed in this preamble
under the ADDRESSES heading. The
Treasury Department and the IRS
request comments on all aspects of the
proposed rules. The Treasury
Department and the IRS specifically
request comments on the following:
1. Whether the proposed regulations
should provide rules regarding the
electronic furnishing of statements that
differ in any way from the rules
regarding the electronic furnishing of
statements that are set forth in
§ 31.6051–1(j).
2. Information about the types and
timing of payments made by acquirers
in reportable policy sales, including the
types of ancillary costs and expenses
paid in reportable policy sales, the
recipients of those payments, and
existing reporting requirements
applicable to those payments.
3. Whether, for purposes of reporting
under section 6050Y(c), only issuers
should be considered payors of
reportable death benefits or whether
payors should be more broadly defined
to include any holder of an interest in
a life insurance contract that receives
reportable death benefits attributable to
that interest and is contractually
obligated to pay them to the beneficial
owner of the interest.
4. Whether a substantial business
relationship or substantial financial
relationship should be considered to
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exist between the acquirer and insured
for purposes of section 101(a)(3) in any
situation not included in the definition
of ‘‘substantial business relationship’’ in
§ 1.101–1(d)(2) of the proposed
regulations or the definition of
‘‘substantial financial relationship’’ in
§ 1.101–1(d)(3) of the proposed
regulations.
5. Whether the proposed regulations
should include additional provisions
regarding the treatment of section 1035
exchanges of life insurance contracts.
6. Whether the exceptions to reporting
by 6050Y(b) issuers and payors under
§§ 1.6050Y–3(f)(1) and 1.6050Y–4(e)(1)
of the proposed regulations (covering
sellers and reportable death benefit
payment recipients documented as
foreign beneficial owners) are
appropriate, including for cases in
which a foreign partnership or a foreign
trust is the seller or reportable death
benefit payment recipient, and also
whether the proposed reporting
requirements are duplicative or could be
combined with other reporting
requirements.
All comments that are submitted by
the public will be available for public
inspection and copying at
www.regulations.gov or upon request.
A public hearing has been scheduled
for June 5, 2019, at 10 a.m., in the IRS
Auditorium, Internal Revenue Service,
1111 Constitution Avenue NW,
Washington, DC. Due to building
security procedures, visitors must enter
at the Constitution Avenue entrance. In
addition, all visitors must present photo
identification to enter the building.
Because of access restrictions, visitors
will not be admitted beyond the
immediate entrance area more than 15
minutes before the hearing starts. For
more information about having your
name placed on the building access list
to attend the hearing, see the FOR
FURTHER INFORMATION CONTACT section of
this preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish
to present oral comments at the hearing
must submit written or electronic
comments and an outline of the topics
to be discussed and the time to be
devoted to each topic by May 9, 2019.
Such persons should submit a signed
paper original and eight (8) copies or an
electronic copy. A period of 10 minutes
will be allotted to each person for
making comments. An agenda showing
the scheduling of the speakers will be
prepared after the deadline for receiving
outlines has passed. Copies of the
agenda will be available free of charge
at the hearing.
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11019
Drafting Information
The principal author of these
regulations is Kathryn M. Sneade, Office
of Associate Chief Counsel (Financial
Institutions and Products), IRS.
However, other personnel from the
Treasury Department and the IRS
participated in their development.
Availability of IRS Documents
The IRS notice cited in this preamble
is published in the Internal Revenue
Bulletin (or Cumulative Bulletin) and is
available from the Superintendent of
Documents, U.S. Government
Publishing Office, Washington, DC
20402, or by visiting the IRS website at
www.irs.gov.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
■
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.101–1 is amended
by:
■ 1. Removing the second and third
sentences in paragraph (a)(1) and adding
a sentence at the end of the paragraph.
■ 2. Revising paragraphs (b)(1) through
(3).
■ 3. Removing paragraphs (b)(4) and (5).
■ 4. Adding paragraphs (c) through (g).
The revisions and additions read as
follows:
■
§ 1.101–1 Exclusion from gross income of
proceeds of life insurance contracts
payable by reason of death.
(a)(1) * * * If the life insurance
contract is an employer-owned life
insurance contract within the definition
of section 101(j)(3), the amount to be
excluded from gross income may be
affected by the provisions of section
101(j).
*
*
*
*
*
(b) * * * (1) Transfer of an interest in
a life insurance contract for valuable
consideration—(i) In general. In the case
of a transfer of an interest in a life
insurance contract for valuable
consideration, including a reportable
policy sale for valuable consideration,
the amount of the proceeds attributable
to the interest that is excludable from
gross income under section 101(a)(1) is
limited under section 101(a)(2) to the
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sum of the actual value of the
consideration for the transfer paid by
the transferee and the premiums and
other amounts subsequently paid by the
transferee with respect to the interest.
For exceptions to this general rule for
certain transfers for valuable
consideration that are not reportable
policy sales, see paragraph (b)(1)(ii) of
this section. The application of section
101(d), (f) or (j), which is not addressed
in paragraph (b) of this section, may
further limit the amount of the proceeds
excludable from gross income.
(ii) Exceptions—(A) Exception for
carryover basis transfers. The limitation
described in paragraph (b)(1)(i) of this
section does not apply to the transfer of
an interest in a life insurance contract
for valuable consideration if each of the
following requirements are satisfied.
First, the transfer is not a reportable
policy sale. Second, the basis of the
interest, for the purpose of determining
gain or loss with respect to the
transferee, is determinable in whole or
in part by reference to the basis of the
interest in the hands of the transferor
(see section 101(a)(2)(A)). Third,
paragraph (b)(1)(ii)(B) of this section
does not apply. In the case of a transfer
described in this paragraph (b)(1)(ii)(A),
the amount of the proceeds attributable
to the interest that is excludable from
gross income under section 101(a)(1) is
limited to the sum of the amount that
would have been excludable by the
transferor if the transfer had not
occurred and the premiums and other
amounts subsequently paid by the
transferee. The preceding sentence
applies without regard to whether the
interest previously has been transferred
and the nature of any prior transfer of
the interest.
(B) Exception for transfers to certain
persons—(1) In general. The limitation
described in paragraph (b)(1)(i) of this
section does not apply to the transfer of
an interest in a life insurance contract
for valuable consideration if both of the
following requirements are satisfied.
First, the transfer is not a reportable
policy sale and the interest was not
previously transferred for valuable
consideration in a reportable policy
sale. Second, the interest is transferred
to the insured, a partner of the insured,
a partnership in which the insured is a
partner, or a corporation in which the
insured is a shareholder or officer (see
section 101(a)(2)(B)).
(2) Transfers to certain persons
subsequent to a reportable policy sale.
If a transfer of an interest in a life
insurance contract would be described
in paragraph (b)(1)(ii)(B)(1) of this
section, but for the fact that the interest
was previously transferred for valuable
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consideration in a reportable policy sale
(whether in the immediately preceding
transfer or an earlier transfer), then the
amount of the proceeds attributable to
the interest that is excludable from gross
income under section 101(a)(1) is
limited to the sum of—
(i) The higher of the amount that
would have been excludable by the
transferor if the transfer had not
occurred or the actual value of the
consideration for the transfer paid by
the transferee; and
(ii) The premiums and other amounts
subsequently paid by the transferee.
(2) Other transfers—(i) Gratuitous
transfer of an interest in a life insurance
contract. To the extent that a transfer of
an interest in a life insurance contract
is gratuitous, including a reportable
policy sale that is not for valuable
consideration, the amount of the
proceeds attributable to the interest that
is excludable from gross income under
section 101(a)(1) is limited to the sum
of the amount of the proceeds
attributable to the gratuitously
transferred interest that would have
been excludable by the transferor if the
transfer had not occurred and the
premiums and other amounts
subsequently paid by the transferee.
(ii) Partial transfers. When only part
of an interest in a life insurance contract
is transferred, the transferor’s exclusion
is ratably apportioned among the several
parts. If multiple parts of an interest are
transferred, the transfer of each part is
treated as a separate transaction, with
each transaction subject to the rule
under paragraph (b) of this section that
is appropriate to the type of transfer
involved.
(iii) Bargain sales. When the transfer
of an interest in a life insurance contract
is in part a sale and in part a gratuitous
transfer, the transfer of each part is
treated as a separate transaction for
purposes of determining the amount of
the proceeds attributable to the interest
that is excludable from gross income
under section 101(a)(1). Each separate
transaction is subject to the rule under
paragraph (b) of this section that is
appropriate to the type of transfer
involved.
(3) Determination of amounts paid by
the transferee. For purposes of
paragraphs (b)(1) and (2) of this section,
in determining the amounts, if any, of
consideration paid by the transferee for
the transfer of an interest in a life
insurance contract and premiums and
other amounts subsequently paid by the
transferee with respect to that interest,
the amounts paid by the transferee are
reduced, but not below zero, by
amounts received by the transferee
under the life insurance contract that
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are not received as an annuity, to the
extent excludable from gross income
under section 72(e).
(c) Reportable policy sale—(1) In
general. Except as provided in
paragraph (c)(2) of this section, a
reportable policy sale for purposes of
this section and section 6050Y is any
direct or indirect acquisition of an
interest in a life insurance contract if the
acquirer has, at the time of the
acquisition, no substantial family,
business, or financial relationship with
the insured apart from the acquirer’s
interest in the life insurance contract.
(2) Exceptions. None of the following
transactions is a reportable policy sale:
(i) A transfer of an interest in a life
insurance contract between entities with
the same beneficial owners, if the
ownership interest of each beneficial
owner in the transferor entity does not
vary by more than a 20 percent
ownership interest from that beneficial
owner’s ownership interest in the
transferee entity. In a series of transfers,
the prior sentence is applied by
comparing the beneficial owners’
ownership interest in the first transferor
entity and the last transferee entity. For
purposes of this paragraph (c)(2)(i), each
beneficial owner of a trust is deemed to
have an ownership interest determined
by the broadest possible exercise of a
trustee’s discretion in that beneficial
owner’s favor. Example 10 in paragraph
(g)(10) of this section provides an
illustration of the application of this
paragraph (c)(2)(i).
(ii) A transfer between corporations
that are members of an affiliated group
(as defined in section 1504(a)) that files
a consolidated U.S. income tax return
for the taxable year in which the transfer
occurs.
(iii) The indirect acquisition of an
interest in a life insurance contract by
a person if—
(A) The partnership, trust, or other
entity that directly holds the interest in
the life insurance contract acquired that
interest in a reportable policy sale
reported in compliance with section
6050Y(a) and § 1.6050Y–2; or
(B) Immediately before the
acquisition, no more than 50 percent of
the gross value of the assets (as
determined under paragraph (f)(4) of
this section) of the partnership, trust, or
other entity that directly holds the
interest in the life insurance contract
consists of life insurance contracts, and
with respect to that partnership, trust, or
other entity, the person indirectly
acquiring the interest in the contract
(acquirer) and his or her family
members own, in the aggregate—
(1) With respect to an S corporation,
stock possessing 5 percent or less of the
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total combined voting power of all
classes of stock entitled to vote and 5
percent or less of the total value of
shares of all classes of stock of the S
corporation;
(2) With respect to a trust or
decedent’s estate, 5 percent or less of
the corpus and 5 percent or less of the
annual income (taking into account, for
the purpose of determining any person’s
ownership interest, the maximum
amount of income and corpus that could
be distributed to or held for the benefit
of that person); or
(3) With respect to a partnership or
other entity that is not a corporation or
a trust, 5 percent or less of the capital
interest and 5 percent or less of the
profits interest.
(d) Substantial relationship—(1)
Substantial family relationship. For
purposes of this section, a substantial
family relationship means the
relationship between an individual and
any family member of that individual as
defined in paragraph (f)(3) of this
section. In addition, a substantial family
relationship exists between an
individual and his or her former spouse
with regard to the transfer of an interest
in a life insurance contract to (or in trust
for the benefit of) that former spouse
incident to divorce. A substantial family
relationship also exists between the
insured and a partnership, trust, or
other entity if all of the beneficial
owners of that partnership, trust, or
other entity have a substantial family
relationship with the insured. For
example, a substantial family
relationship exists between the insured
and an entity that acquires an interest in
a life insurance contract on the
insured’s life if the insured is the sole
beneficial owner of the entity or each
beneficial owner of the entity is either
the insured or a family member of the
insured.
(2) Substantial business relationship.
For purposes of this section, a
substantial business relationship
between the insured and the acquirer
exists in each of the following
situations:
(i) The insured is a key person (as
defined in section 264) of, or materially
participates (within the meaning of
section 469) in, an active trade or
business as an owner, employee, or
contractor, and at least 80% of that trade
or business is owned (directly or
indirectly, through one or more
partnerships, trusts, or other entities) by
the acquirer or the beneficial owners of
the acquirer.
(ii) The acquirer acquires an active
trade or business and acquires the
interest in the life insurance contract
either as part of that acquisition or from
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a person owning significant property
leased to the acquired trade or business
or life insurance policies held to
facilitate the succession of the
ownership of the business if—
(A) The insured—
(1) Is an employee within the meaning
of section 101(j)(5)(A) of the acquired
trade or business immediately preceding
the acquisition; or
(2) Was a director, highly
compensated employee, or highly
compensated individual within the
meaning of section 101(j)(2)(A)(ii) of the
acquired trade or business, and the
acquirer, immediately after the
acquisition, has ongoing financial
obligations to the insured with respect
to the insured’s employment by the
trade or business (for example, the life
insurance contract is maintained by the
acquirer to fund current or future
retirement, pension, or survivorship
obligations based on the insured’s
relationship with the entity or to fund
a buy-out of the insured’s interest in the
acquired trade or business); and
(B) The acquirer either carries on the
acquired trade or business or uses a
significant portion of the acquired
business assets in an active trade or
business that does not include investing
in interests in life insurance contracts.
(3) Substantial financial relationship.
For purposes of this section, a
substantial financial relationship
between the insured and the acquirer
exists in each of the following
situations:
(i) The acquirer (directly or indirectly,
through one or more partnerships,
trusts, or other entities of which it is a
beneficial owner) has, or the beneficial
owners of the acquirer have, a common
investment (other than the interest in
the life insurance contract) with the
insured and a buy-out of the insured’s
interest in the common investment by
the co-investor(s) after the insured’s
death is reasonably foreseeable.
(ii) The acquirer maintains the life
insurance contract on the life of the
insured to provide funds to purchase
assets or satisfy liabilities following the
death of the insured.
(iii) The acquirer is an organization
described in sections 170(c), 2055(a),
and 2522(a) that previously received
financial support in a substantial
amount or significant volunteer support
from the insured.
(4) Special rules. Paragraphs (d)(4)(i)
and (ii) of this section apply for
purposes of determining whether a
substantial business relationship exists
under paragraph (d)(2) of this section
and for purposes of determining
whether a substantial financial
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11021
relationship exists under paragraph
(d)(3) of this section.
(i) Indirect acquisitions. The acquirer
in an indirect acquisition of an interest
in a life insurance contract is deemed to
have a substantial business or financial
relationship with the insured if the
direct holder of the interest in the life
insurance contract has a substantial
business or financial relationship with
the insured immediately before and
after the date the acquirer acquires its
interest.
(ii) Acquisitions by certain persons.
The sole fact that an acquirer is a
partner of the insured, a partnership in
which the insured is a partner, or a
corporation in which the insured is a
shareholder or officer, is not sufficient
to establish a substantial business or
financial relationship with the insured.
In addition, an acquirer need not be a
partner of the insured, a partnership in
which the insured is a partner, or a
corporation in which the insured is a
shareholder or officer to have a
substantial business or financial
relationship with the insured.
(e) Interest in a life insurance
contract—(1) Definition. For purposes of
this section and section 6050Y, the term
interest in a life insurance contract
means the interest held by any person
that has taken title to or possession of
the life insurance contract (also referred
to as a life insurance policy), in whole
or part, for state law purposes, including
any person that has taken title or
possession as nominee for another
person, and the interest held by any
person that has an enforceable right to
receive all or a part of the proceeds of
a life insurance contract or to any other
economic benefits of the policy as
described in § 20.2042–1(c)(2) of this
chapter, such as the enforceable right to
designate a contract beneficiary. Any
person named as the owner in the life
insurance contract generally is the
owner (or an owner) of the contract and
holds an interest in the contract.
(2) Transfer of an interest in a life
insurance contract. For purposes of this
section and section 6050Y, the term
transfer of an interest in a life insurance
contract means the transfer of any
interest in the life insurance contract,
including any transfer of title to,
possession of, or legal or beneficial
ownership of the life insurance contract
itself. The creation of an enforceable
right to receive all or a part of the
proceeds of a life insurance contract
constitutes the transfer of an interest in
the life insurance contract. The
following events are not a transfer of an
interest in a life insurance contract: The
revocable designation of a beneficiary of
the policy proceeds (until the
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designation becomes irrevocable other
than by reason of the death of the
insured); the pledging or assignment of
a policy as collateral security; and the
issuance of a life insurance contract to
a policyholder, other than the issuance
of a policy in an exchange pursuant to
section 1035.
(3) Acquisition of an interest in a life
insurance contract. For purposes of this
section and section 6050Y, the
acquisition of an interest in a life
insurance contract may be direct or
indirect.
(i) Direct acquisition of an interest in
a life insurance contract. For purposes
of this section and section 6050Y, the
transfer of an interest in a life insurance
contract results in the direct acquisition
of the interest by the transferee
(acquirer).
(ii) Indirect acquisition of an interest
in a life insurance contract. For
purposes of this section and section
6050Y, an indirect acquisition of an
interest in a life insurance contract
occurs when a person (acquirer)
becomes a beneficial owner of a
partnership, trust, or other entity that
holds (whether directly or indirectly)
the interest in the life insurance
contract. For purposes of this paragraph
(e)(3)(ii), the term other entity does not
include a C corporation, unless more
than 50 percent of the gross value of the
assets of the C corporation consists of
life insurance contracts (as determined
under paragraph (f)(4) of this section)
immediately before the indirect
acquisition.
(f) Definitions. The following
definitions apply for purposes of this
section:
(1) Beneficial owner. A beneficial
owner of a partnership, trust or other
entity is an individual or C corporation
with an ownership interest in that
entity. The interest may be held directly
or indirectly, through one or more other
partnerships, trusts, or other entities.
For instance, an individual that directly
owns an interest in a partnership (P1),
which directly owns an interest in
another partnership (P2), is an indirect
beneficial owner of P2 and any assets or
other entities owned by P2 directly or
indirectly. For purposes of this
paragraph (f)(1), the beneficial owners of
a trust include those who may receive
current distributions of trust income or
corpus and those who could receive
distributions if the trust were to
terminate currently.
(2) C corporation. The term C
corporation has the meaning given to it
in section 1361(a)(2).
(3) Family member. With respect to
any individual, the term family member
refers to any person described in
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paragraphs (f)(3)(i) through (vii) of this
section. For purposes of this paragraph
(f)(3), full effect is given to a legal
adoption, and a step-child is deemed to
be a descendant. The family members of
an individual include:
(i) The individual;
(ii) The individual’s spouse or a
person with whom the individual is in
a registered domestic partnership, civil
union, or other similar relationship
established under state law;
(iii) Any parent, grandparent, or greatgrandparent of the individual or of the
person described in paragraph (f)(3)(ii)
of this section and any spouse of such
parent, grandparent, or greatgrandparent, or person with whom the
parent, grandparent, or greatgrandparent is in a registered domestic
partnership, civil union, or other similar
relationship established under state law;
(iv) Any lineal descendant of the
individual or of any person described in
paragraph (f)(3)(ii) or (iii) of this section;
(v) Any spouse of a lineal descendant
described in paragraph (f)(3)(iv) of this
section and any person with whom such
a lineal descendant is in a registered
domestic partnership, civil union, or
other similar relationship established
under state law;
(vi) Any lineal descendant of a person
described in paragraph (f)(3)(v) of this
section; and
(vii) Any trust established and
maintained for the primary benefit of
the individual or one or more persons
described in paragraph (f)(3)(i) through
(vi) of this section.
(4) Gross value of assets—(i)
Determination of gross value of assets.
Except as otherwise provided in
paragraph (f)(4)(ii) and (iii) of this
section, for purposes of paragraphs
(c)(2)(iii)(B) and (e)(3)(ii) of this section,
the term gross value of assets means,
with respect to any entity, the fair
market value of the entity’s assets.
(ii) Determination of gross value of
assets of publicly traded entity. For
purposes of determining the gross value
of assets of an entity that is publicly
traded, if the entity’s annual Form 10–
K filed with the United States Securities
and Exchange Commission (or
equivalent annual filing if the entity is
publicly traded in a non-U.S.
jurisdiction) for the period immediately
preceding a person’s acquisition of an
ownership interest in the entity does not
contain information demonstrating that
more than 50 percent of the gross value
of the entity’s assets consist of life
insurance contracts, that person may
assume that no more than 50 percent of
the gross value of the entity’s assets
consist of life insurance contracts,
unless that person has actual knowledge
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or reason to know that more than 50
percent of the gross value of the entity’s
assets consist of life insurance contracts.
(iii) Safe harbor definition of gross
value of assets. An entity may choose to
determine the gross value of all the
entity’s assets for purposes of this
section using the following alternative
definition of gross value of assets:
(A) In the case of assets that are life
insurance policies or annuity or
endowment contracts that have cash
values, the cash surrender value as
defined in section 7702(f)(2)(A); and
(B) In the case of assets not described
in paragraph (f)(4)(iii)(A) of this section,
the adjusted bases (within the meaning
of section 1016) of such assets.
(5) Transfer for valuable
consideration. A transfer for valuable
consideration means any transfer of an
interest in a life insurance contract for
cash or other consideration reducible to
a money value.
(g) Examples. The application of this
section is illustrated by the following
examples, all of which assume that the
transferee did not receive any amounts
under the life insurance contract other
than the amounts described in the
examples:
(1) Example 1. A is the initial policyholder
of a $100,000 insurance policy on A’s life. A
sells the policy to B, A’s child, for $6,000, its
fair market value. B is not a partner in a
partnership in which A is a partner. B
receives the proceeds of $100,000 upon the
death of A. Because the transfer to B was for
valuable consideration, and none of the
exceptions in paragraph (b)(1)(ii) of this
section applies, the amount of the proceeds
B may exclude from B’s gross income under
this section is limited under paragraph
(b)(1)(i) of this section to $6,000 plus any
premiums and other amounts paid by B
subsequent to the transfer.
(2) Example 2. The facts are the same as
in Example 1 in paragraph (g)(1) of this
section except that, before A’s death, B
gratuitously transfers the policy back to A.
A’s estate receives the proceeds of $100,000
on A’s death. Because the transfer from B to
A is a gratuitous transfer, the amount of the
proceeds A’s estate may exclude from gross
income under this section is limited under
paragraph (b)(2)(i) of this section to the sum
of the amount B could have excluded had the
transfer back to A not occurred ($6,000 plus
any premiums and other amounts paid by B
subsequent to the transfer to B, as described
in Example 1 in paragraph (g)(1) of this
section) plus any premiums and other
amounts paid by A subsequent to the transfer
to A.
(3) Example 3. The facts are the same as
in Example 1 in paragraph (g)(1) of this
section except that, before A’s death, B sells
the policy back to A for its fair market value.
A’s estate receives the proceeds of $100,000
on A’s death. The transfer from A to B is not
a reportable policy sale because the acquirer
B has a substantial family relationship with
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the insured A. The transfer from B to A is
also not a reportable policy sale because the
acquirer A has a substantial family
relationship with the insured A. Accordingly,
paragraph (b)(1)(ii)(B)(1) of this section
applies to the transfer to A. The amount of
the proceeds A’s estate may exclude from
gross income is not limited by paragraph (b)
of this section.
(4) Example 4. A is the initial policyholder
of a $100,000 insurance policy on A’s life. A
transfers the policy for $6,000, its fair market
value, to an individual, C, who does not have
a substantial family, business, or financial
relationship with A. The transfer from A to
C is a reportable policy sale. C receives the
proceeds of $100,000 on A’s death. The
amount of the proceeds C may exclude from
C’s gross income under this section is limited
under paragraph (b)(1)(i) of this section to
$6,000 plus any premiums and other
amounts paid by C subsequent to the transfer.
(5) Example 5. The facts are the same as
in Example 4 in paragraph (g)(4) of this
section, except that before A’s death, C
transfers the policy back to A for $8,000, its
fair market value. A’s estate receives the
proceeds of $100,000 on A’s death. The
transfer from C to A is not a reportable policy
sale because the acquirer A has a substantial
family relationship with the insured A.
Because that transfer follows a reportable
policy sale (the transfer from A to C), the
amount of the proceeds that A’s estate may
exclude from gross income under this section
is limited by paragraph (b)(1)(ii)(B)(2) of this
section to the sum of—
(i) The higher of the amount C could have
excluded had the transfer back to A not
occurred ($6,000 plus any premiums and
other amounts paid by C subsequent to the
transfer to C, as described in Example 4 in
paragraph (g)(4) of this section) or the actual
value of the consideration for that transfer
paid by A ($8,000); and
(ii) Any premiums and other amounts paid
by A subsequent to the transfer to A.
(6) Example 6. The facts are the same as
in Example 4 in paragraph (g)(4) of this
section, except that before A’s death, C
gratuitously transfers the policy to A. A’s
estate receives the proceeds of $100,000 on
A’s death. Because the transfer from C to A
was gratuitous, the amount of the proceeds
A’s estate may exclude from gross income is
limited under paragraph (b)(2)(i) of this
section to the sum of the amount C could
have excluded had the transfer back to A not
occurred ($6,000 plus any premiums and
other amounts paid by C subsequent to the
transfer to C, as described in Example 4 in
paragraph (g)(4) of this section), plus any
premiums and other amounts paid by A
subsequent to the transfer back to A.
(7) Example 7. A is the initial policyholder
of a $100,000 insurance policy on A’s life. A
contributes the policy to Corporation X in
exchange for stock. Corporation X’s basis in
the policy is determinable in whole or in part
by reference to A’s basis in the policy.
Corporation X conducts an active trade or
business that it wholly owns, and A
materially participates in that active trade or
business as an employee of Corporation X.
Corporation X receives the proceeds of
$100,000 on A’s death. A’s contribution of
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the policy to Corporation X is not a
reportable policy sale because Corporation X
has a substantial business relationship with
A under paragraph (d)(2)(i) of this section.
Accordingly, under paragraph (b)(1)(ii)(B)(1)
of this section, Corporation X may exclude
the full amount of the proceeds from gross
income because Corporation X’s exclusion is
not limited by paragraph (b) of this section.
(8) Example 8. The facts are the same as
in Example 7 in paragraph (g)(7) of this
section, except that Corporation X transfers
its active trade or business and the policy on
A’s life to Corporation Y in a tax-free
reorganization at a time when A is still
employed by Corporation X, but is no longer
a shareholder of Corporation X. Corporation
Y’s basis in the policy is determinable in
whole or in part by reference to Corporation
X’s basis in the property, and Corporation Y
carries on the trade or business acquired from
Corporation X. Corporation Y receives the
proceeds of $100,000 on A’s death. The
transfer from Corporation X to Corporation Y
is not a reportable policy sale because
Corporation Y has a substantial business
relationship with A under paragraph (d)(2)(ii)
of this section. The amount of the proceeds
that Corporation Y may exclude from gross
income is limited under paragraph
(b)(1)(ii)(A) of this section to the sum of the
amount that would have been excludable by
Corporation X had the transfer to Corporation
Y not occurred (the full amount of the
proceeds, as described in Example 7 in
paragraph (g)(7) of this section), plus any
premiums and other amounts paid by
Corporation Y subsequent to the transfer.
Accordingly, Corporation Y may exclude the
full amount of the proceeds from gross
income.
(9) Example 9. A is the initial policyholder
of a $100,000 insurance policy on A’s life. A
contributes the policy to a C corporation,
Corporation W, in exchange for stock. Before
and after the acquisition, A and A’s family
members own less than 5% of the total
combined voting power of all classes of
Corporation W stock entitled to vote and less
than 5% of the total value of all classes of
Corporation W stock. Corporation W’s basis
in the policy is determinable in whole or in
part by reference to A’s basis in the property.
However, no substantial family, business, or
financial relationship exists between A and
Corporation W. Corporation W receives the
proceeds of $100,000 on A’s death. A’s
contribution of the policy to Corporation W
is a reportable policy sale. Under paragraph
(b)(1)(i) of this section, the amount of the
proceeds Corporation W may exclude from
gross income is limited to the actual value of
the stock exchanged for the policy, plus any
premiums and other amounts paid by
Corporation W subsequent to the transfer.
(10) Example 10. Partnership X and
Partnership Y are owned by individuals A, B,
and C. A holds 40% of the capital and profits
interest of Partnership X and 20% of the
capital and profits interest of Partnership Y.
B holds 35% of the capital and profits
interest of Partnership X and 40% of the
capital and profits interest of Partnership Y.
C holds 25% of the capital and profits
interest of Partnership X and 40% of the
capital and profits interest of Partnership Y.
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11023
Partnership X is the initial policyholder of a
$100,000 insurance policy on the life of A.
Partnership Y purchases the policy from
Partnership X. Under paragraph (c)(2)(i) of
this section, this transfer is not a reportable
policy sale because the ownership interest of
each beneficial owner in Partnership X does
not vary from that owner’s interest in
Partnership Y by more than a 20% ownership
interest. A’s ownership varies by a 20%
interest, B’s ownership varies by a 5%
interest, and C’s ownership varies by a 15%
interest.
(11) Example 11. Partnership X conducts
an active trade or business and is the initial
policyholder of a $100,000 insurance policy
on the life of its full-time employee, A. A
materially participates in Partnership X’s
active trade or business in A’s capacity as an
employee. Individual B acquires a 10%
profits interest in Partnership X in exchange
for a cash payment of $1,000,000. Under
paragraphs (d)(1) through (3) of this section,
B does not have a substantial family,
business, or financial relationship with A.
Under paragraph (d)(4)(i) of this section, B is
deemed to have a substantial business
relationship with A because, under
paragraph (d)(2)(i) of this section, Partnership
X (the direct policyholder) has a substantial
business relationship with A. Accordingly,
although the acquisition of the 10%
partnership interest by B is an indirect
acquisition of a 10% interest in the insurance
policy covering A’s life, the acquisition is not
a reportable policy sale.
(12) Example 12. The facts are the same
as in Example 11 in paragraph (g)(11) of this
section, except that A is no longer an
employee of Partnership X when B acquires
the profits interest in Partnership X, and
Partnership X does not have any ongoing
financial obligations to A. Also, B acquires
only a 5% partnership interest in exchange
for a cash payment of $500,000. Partnership
X does not own an interest in any other life
insurance policies, and the gross value of its
assets is $10 million. Although neither
Partnership X nor B has a substantial family,
business, or financial relationship with A at
the time of B’s indirect acquisition of an
interest in the policy covering A’s life,
because B’s profits interest in Partnership X
does not exceed 5%, and because no more
than 50% of Partnership X’s asset value
consists of life insurance contracts, the
exception in paragraph (c)(2)(iii)(B) of this
section applies, and B’s indirect acquisition
of an interest in the policy covering A’s life
is not a reportable policy sale.
Par. 3. Section 1.101–6 is amended by
revising paragraph (b) to read as follows:
■
§ 1.101–6
Effective date.
*
*
*
*
*
(b) Notwithstanding paragraph (a) of
this section, for purposes of section
6050Y, § 1.101–1(b), (c), (d), (e), (f), and
(g) apply to reportable policy sales made
after December 31, 2017, and to
reportable death benefits paid after
December 31, 2017. For any other
purpose, § 1.101–1(b), (c), (d), (e), (f),
and (g) apply to transfers of life
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insurance contracts, or interests therein,
made after the date the Treasury
decision adopting these regulations as
final regulations is published in the
Federal Register.
■ Par. 4. Section 1.6050Y–1 is added to
read as follows:
§ 1.6050Y–1 Information reporting for
reportable policy sales, transfers of life
insurance contracts to foreign persons, and
reportable death benefits.
(a) Definitions. The following
definitions apply for purposes of this
section and §§ 1.6050Y–2 through
1.6050Y–4:
(1) Acquirer. The term acquirer means
any person that acquires an interest in
a life insurance contract (through a
direct acquisition or indirect acquisition
of the interest) in a reportable policy
sale.
(2) Buyer. The term buyer means, with
respect to any interest in a life insurance
contract that has been transferred in a
reportable policy sale, the person that
was the most recent acquirer of that
interest in a reportable policy sale as of
the date reportable death benefits are
paid under the contract.
(3) Direct acquisition of an interest in
a life insurance contract. The term
direct acquisition of an interest in a life
insurance contract has the meaning
given to it in § 1.101–1(e)(3)(i).
(4) Foreign person. The term foreign
person means a person that is not a
United States person, as defined in
section 7701(a)(30).
(5) Indirect acquisition of an interest
in a life insurance contract. The term
indirect acquisition of an interest in a
life insurance contract has the meaning
given to it in § 1.101–1(e)(3)(ii).
(6) Interest in a life insurance
contract. The term interest in a life
insurance contract has the meaning
given to it in § 1.101–1(e)(1).
(7) Investment in the contract—(i)
Definition of investment in the contract.
With respect to the original
policyholder of a life insurance contract,
the term investment in the contract on
any date means that person’s investment
in the contract under section 72(e)(6) on
that date. With respect to any other
person, the term investment in the
contract on any date means the estimate
of investment in the contract on that
date.
(ii) Definition of estimate of
investment in the contract. The term
estimate of investment in the contract
with respect to any person, other than
the original policyholder, means, on any
date, the aggregate amount of premiums
paid for the contract by that person
before that date, less the aggregate
amount received under the contract by
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that person before that date to the extent
such information is known to or can
reasonably be estimated by the issuer or
payor.
(8) Issuer—(i) In general. Except as
provided in paragraphs (a)(8)(ii) and (iii)
of this section, the term issuer generally
means, on any date, with respect to any
interest in a life insurance contract, any
person that bears any part of the risk
with respect to the life insurance
contract on that date and any person
responsible on that date for
administering the contract, including
collecting premiums and paying death
benefits. For instance, if a reinsurer
reinsures on an indemnity basis all or a
portion of the risks that the original
issuer (and continuing contract
administrator) might otherwise have
incurred with respect to a life insurance
contract, both the reinsurer and the
original issuer of the contract are issuers
of the life insurance contract for
purposes of this paragraph (a)(8)(i). Any
designee of an issuer is also considered
an issuer for purposes of this paragraph
(a)(8)(i).
(ii) 6050Y(a) issuer. For purposes of
information reporting under section
6050Y(a) and § 1.6050Y–2, the 6050Y(a)
issuer is the issuer that is responsible
for administering the life insurance
contract, including collecting premiums
and paying death benefits under the
contract, on the date of the reportable
policy sale.
(iii) 6050Y(b) issuer. For purposes of
information reporting under section
6050Y(b) and § 1.6050Y–3, a 6050Y(b)
issuer is:
(A) Any person that receives a RPSS
with respect to a life insurance contract
or interest therein (or, in the case of a
designee, receives notice that the issuer
for whom it serves as designee received
a RPSS), and is or was, on or before the
date of receipt of the RPSS, an issuer
with respect to the life insurance
contract; or
(B) Any person that receives notice of
a transfer to a foreign person of the life
insurance contract and is or was, on the
date of transfer or on the date of receipt
of the notice, an issuer with respect to
the life insurance contract, unless:
(1) That person (or, in the case of a
designee, the issuer for whom it serves
as designee) is not responsible for
administering the life insurance
contract, including collecting premiums
and paying death benefits under the
contract, on the date the notice of a
transfer to a foreign person of a life
insurance contract is received; and
(2) That person, or its designee,
provides the issuer that is responsible
on that date for administering the life
insurance contract, including collecting
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premiums and paying death benefits
under the contract, with such notice and
with any available information
necessary to accomplish reporting under
section 6050Y(b) and § 1.6050Y–3.
(iv) Designee. A person is treated as
the designee of an issuer for purposes of
this paragraph (a)(8) only if so
designated in writing, including
electronically. The designation must be
signed and acknowledged, in writing or
electronically, by the person named as
designee, or that person’s
representative, and by the issuer making
the designation, or its representative.
(9) Life insurance contract. The term
life insurance contract has the meaning
given to it in section 7702(a). A life
insurance contract may also be referred
to as a life insurance policy.
(10) Notice of a transfer to a foreign
person. The term notice of a transfer to
a foreign person means any notice of a
transfer of title to, possession of, or legal
ownership of a life insurance contract
received by a 6050Y(b) issuer, including
information provided for nontax
purposes such as a change of address
notice for purposes of sending
statements or for other purposes, and
information relating to loans, premiums,
or death benefits with respect to the
contract unless the 6050Y(b) issuer
knows that no transfer of the life
insurance contract has occurred or
knows that the transferee is a United
States person. For this purpose, a
6050Y(b) issuer may rely on a Form W–
9, Request for Taxpayer Identification
Number and Certification, or a valid
substitute form, that meets the
requirements of § 1.1441–1(d)(2)
(substituting ‘‘6050Y(b) issuer’’ for
‘‘withholding agent’’), that indicates the
transferee is a United States person. For
instance, a change of address notice that
changes the address to a foreign address
or other updates to the information
relating to the payment of premiums
that includes foreign banking or other
foreign financial institution information
is notice of a transfer to a foreign person
unless the 6050Y(b) issuer knows that
no transfer has occurred or the
transferee is a United States person.
(11) Payor. The term payor means any
person making a payment of reportable
death benefits.
(12) Reportable death benefits. The
term reportable death benefits means
amounts paid by reason of the death of
the insured under a life insurance
contract that are attributable to an
interest in the life insurance contract
that was transferred in a reportable
policy sale.
(13) Reportable death benefits
payment recipient. The term reportable
death benefits payment recipient means
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any person that receives reportable
death benefits as a beneficiary under a
life insurance contract or as the holder
of an interest in a life insurance
contract.
(14) Reportable policy sale. The term
reportable policy sale has the meaning
given to it in § 1.101–1(c).
(15) Reportable policy sale payment.
The term reportable policy sale payment
generally means the total amount of
cash and the fair market value of any
other consideration transferred, or to be
transferred, in a reportable policy sale,
including any amount of a reportable
policy sale payment recipient’s debt
assumed by the acquirer in a reportable
policy sale. In the case of an indirect
acquisition of an interest in a life
insurance contract that is a reportable
policy sale, the reportable policy sale
payment is the amount of cash and the
fair market value of any other
consideration transferred for the
ownership interest in the entity,
including the amount of any debt
assumed by the acquirer, that is
appropriately allocable to the interest in
the life insurance contract held by the
entity.
(16) Reportable policy sale payment
recipient. The term reportable policy
sale payment recipient means any
person that receives a reportable policy
sale payment in a reportable policy sale.
A broker or other intermediary that
retains a portion of the cash or other
consideration transferred in a reportable
policy sale is also a reportable policy
sale payment recipient.
(17) Reportable policy sale statement.
The term reportable policy sale
statement (RPSS) means a statement
furnished by an acquirer to an issuer
under section 6050Y(a)(2) and
§ 1.6050Y–2(d)(2)(i).
(18) Seller. The term seller means any
person that—
(i) Holds an interest in a life insurance
contract and transfers that interest, or
any part of that interest, to an acquirer
in a reportable policy sale; or
(ii) Owns a life insurance contract and
transfers title to, possession of, or legal
ownership of that life insurance contract
to a foreign person.
(19) Transfer of an interest in a life
insurance contract. The term transfer of
an interest in a life insurance contract
has the meaning given to it in § 1.101–
1(e)(2).
(20) United States person. The term
United States person has the meaning
given to it in section 7701(a)(30).
(b) Applicability date. This section
and §§ 1.6050Y–2 through 1.6050Y–3
apply to reportable policy sales made
after December 31, 2017. This section
and § 1.6050Y–4 apply to reportable
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death benefits paid after December 31,
2017. However, for reportable policy
sales and payments of reportable death
benefits occurring after December 31,
2017, and before the date final
regulations are published in the Federal
Register, transition relief will be
provided as follows:
(1) For reportable policy sales
occurring after December 31, 2017, and
before the date final regulations are
published in the Federal Register,
statements required to be furnished to
issuers under section 6050Y(a)(2) and
§ 1.6050Y–2 must be furnished by the
later of the applicable deadline set forth
in final regulations or 60 days after the
date final regulations are published in
the Federal Register.
(2) For reportable policy sales
occurring after December 31, 2017, and
before the date final regulations are
published in the Federal Register,
returns required to be filed under
section 6050Y(a)(1) and (b)(1),
§ 1.6050Y–2, and § 1.6050Y–3 and
statements required to be furnished to
payment recipients and sellers under
section 6050Y(a)(2) and (b)(2),
§ 1.6050Y–2, and § 1.6050Y–3 must be
filed or furnished by the later of the
applicable deadline set forth in final
regulations or 90 days after the date
final regulations are published in the
Federal Register.
(3) For payments of reportable death
benefits paid after December 31, 2017,
and before the date final regulations are
published in the Federal Register,
returns required to be filed under
section 6050Y(c)(1) and § 1.6050Y–4
and statements required to be furnished
to payment recipients under section
6050Y(c)(2) and § 1.6050Y–4 must be
filed or furnished by the later of the
applicable deadline set forth in final
regulations or 90 days after the date
final regulations are published in the
Federal Register.
■ Par. 5. Section 1.6050Y–2 is added to
read as follows:
§ 1.6050Y–2 Information reporting by
acquirers for reportable policy sale
payments.
(a) Requirement of reporting. Except
as provided in paragraph (f) of this
section, every person that is an acquirer
in a reportable policy sale during any
calendar year must file a separate
information return with the Internal
Revenue Service (IRS) in the form and
manner as required by the IRS for each
reportable policy sale payment
recipient, including any seller that is a
reportable policy sale payment
recipient. Each return must include the
following information with respect to
the seller or other reportable policy sale
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11025
payment recipient to which the return
relates:
(1) The name, address, and taxpayer
identification number (TIN) of the
acquirer;
(2) The name, address, and TIN of the
seller or other reportable policy sale
payment recipient to which the return
relates;
(3) The date of the reportable policy
sale;
(4) The name of the 6050Y(a) issuer of
the life insurance contract acquired and
the policy number of the life insurance
contract;
(5) The aggregate amount of reportable
policy sale payments made, or to be
made, to the seller or other reportable
policy sale payment recipient to which
the return relates with respect to the
reportable policy sale; and
(6) Any other information that is
required by the form or its instructions.
(b) Unified reporting. The information
reporting requirement of paragraph (a)
of this section applies to each acquirer
in a series of prearranged transfers of an
interest in a life insurance contract. In
a series of prearranged transfers, an
acquirer’s reporting obligation is
deemed satisfied if the information
required by paragraph (a) of this section
with respect to that acquirer is timely
reported on behalf of that acquirer in a
manner that is consistent with forms,
instructions, and other IRS guidance by
one or more other acquirers or by a third
party information reporting contractor.
(c) Time and place for filing. Returns
required to be made under paragraph (a)
of this section must be filed with the
Internal Revenue Service Center
designated on the prescribed form or in
its instructions on or before February 28
(March 31 if filed electronically) of the
year following the calendar year in
which the reportable policy sale
occurred. However, see § 1.6050Y–
1(b)(2) for transition rules.
(d) Requirement of and time for
furnishing statements—(1) Statements
to reportable policy sale payment
recipients—(i) Requirement of
furnishing statement. Every person
required to file an information return
under paragraph (a) of this section with
respect to a reportable policy sale
payment recipient must furnish in the
form and manner prescribed by the IRS
to the reportable policy sale payment
recipient whose name is set forth in that
return a written statement showing the
information required by paragraph (a) of
this section with respect to the
reportable policy sale payment recipient
and the name, address, and phone
number of the information contact of the
person furnishing the written statement.
The contact information of the person
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furnishing the written statement must
provide direct access to a person that
can answer questions about the
statement. The statement is not required
to include information with respect to
any other reportable policy sale
payment recipient in the reportable
policy sale or information about
reportable policy sale payments to any
other reportable policy sale payment
recipient.
(ii) Time for furnishing statement.
Each statement required by paragraph
(d)(1)(i) of this section to be furnished
to any reportable policy sale payment
recipient must be furnished on or before
February 15 of the year following the
calendar year in which the reportable
policy sale occurred. However, see
§ 1.6050Y–1(b)(2) for transition rules.
(2) Statements to 6050Y(a) issuers—(i)
Requirement of furnishing RPSS—(A) In
general. Except as provided in
paragraph (d)(2)(i)(B) of this section,
every person required to file a return
under paragraph (a) of this section must
furnish in the form and manner
prescribed by the IRS to the 6050Y(a)
issuer whose name is required to be set
forth in the return a RPSS with respect
to each reportable policy sale payment
recipient that is also a seller. Each RPSS
must show the information required by
paragraph (a) of this section with
respect to the seller named therein,
except that the RPSS is not required to
set forth the amount of any reportable
policy sale payment. Each RPSS must
also show the name, address, and phone
number of the information contact of the
person furnishing the RPSS. This
contact information must provide direct
access to a person that can answer
questions about the RPSS.
(B) Exception from reporting. A RPSS
is not required to be furnished to the
6050Y(a) issuer by an acquirer acquiring
an interest in a life insurance contract
in an indirect acquisition.
(ii) Time for furnishing RPSS. Except
as otherwise provided in this paragraph
(d)(2)(ii), each RPSS required by
paragraph (d)(2)(i) of this section to be
furnished to a 6050Y(a) issuer must be
furnished by the later of 20 calendar
days after the reportable policy sale, or
5 calendar days after the end of the
applicable state law rescission period.
However, if the later date is after
January 15 of the year following the
calendar year in which the reportable
policy sale occurred, the RPSS must be
furnished by January 15 of the year
following the calendar year in which the
reportable policy sale occurred. See
§ 1.6050Y–1(b)(1) for transition rules.
(3) Unified reporting. The information
reporting requirements of paragraphs
(d)(1)(i) and (d)(2)(i) of this section
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apply to each acquirer in a series of
prearranged transfers of an interest in a
life insurance contract, as described in
paragraph (b) of this section. In a series
of prearranged transfers of an interest in
a life insurance contract, an acquirer’s
obligation to furnish statements is
deemed satisfied if the information
required by paragraphs (d)(1)(i) and
(d)(2)(i) of this section with respect to
that acquirer is timely reported on
behalf of that acquirer consistent with
forms, instructions, and other IRS
guidance by one or more other acquirers
or by a third party information reporting
contractor.
(e) Notice of rescission of a reportable
policy sale. Any person that has filed a
return required by section 6050Y(a)(1)
and this section with respect to a
reportable policy sale must file a
corrected return within 15 calendar
days of the receipt of notice of the
rescission of the reportable policy sale.
Any person that has furnished a written
statement under section 6050Y(a)(2) and
this section with respect to the
reportable policy sale must furnish the
recipient of that statement with a
corrected statement within 15 calendar
days of the receipt of notice of the
rescission of the reportable policy sale.
(f) Exceptions to requirement to file.
An acquirer that is a foreign person is
not required to file an information
return under paragraph (a) of this
section with respect to a reportable
policy sale unless—
(1) The life insurance contract (or
interest therein) transferred in the sale
is on the life of an insured who is a
United States person at the time of the
sale; or
(2) The sale is subject to the laws of
one or more States of the United States
that pertain to acquisitions or sales of
life insurance contracts (or interests
therein).
(g) Cross-reference to penalty
provisions—(1) Failure to file correct
information return. For provisions
relating to the penalty provided for
failure to file timely a correct
information return required under
section 6050Y(a)(1) and this section, see
section 6721 and § 301.6721–1 of this
chapter. See § 301.6724–1 of this
chapter for the waiver of a penalty if the
failure is due to reasonable cause and is
not due to willful neglect.
(2) Failure to furnish correct
statement. For provisions relating to the
penalty provided for failure to furnish a
correct statement to identified persons
under section 6050Y(a)(2) and this
section, see section 6722 and
§ 301.6722–2 of this chapter. See
§ 301.6724–1 of this chapter for the
waiver of a penalty if the failure is due
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to reasonable cause and is not due to
willful neglect.
■ Par. 6. Section 1.6050Y–3 is added to
read as follows:
§ 1.6050Y–3 Information reporting by
6050Y(b) issuers for reportable policy sales
and transfers of life insurance contracts to
foreign persons.
(a) Requirement of reporting. Except
as provided in paragraph (f) of this
section, each 6050Y(b) issuer, that
receives a RPSS or any notice of a
transfer to a foreign person must file an
information return with the Internal
Revenue Service (IRS) with respect to
each seller in the form and manner
prescribed by the IRS. The return must
include the following information with
respect to the seller:
(1) The name, address, and taxpayer
identification number (TIN) of the
seller;
(2) The investment in the contract
with respect to the seller;
(3) The amount the seller would have
received if the seller had surrendered
the life insurance contract on the date
of the reportable policy sale or the
transfer of the contract to a foreign
person, or if the date of the transfer to
a foreign person is not known to the
6050Y(b) issuer, the date the 6050Y(b)
issuer received notice of the transfer;
and
(4) Any other information that is
required by the form or its instructions.
(b) Unified reporting. Each 6050Y(b)
issuer subject to the information
reporting requirement of paragraph (a)
of this section must satisfy that
requirement, but a 6050Y(b) issuer’s
reporting obligation is deemed satisfied
if the information required by paragraph
(a) of this section with respect to that
6050Y(b) issuer is timely reported on
behalf of that 6050Y(b) issuer in a
manner that is consistent with forms,
instructions, and other IRS guidance by
one or more other 6050Y(b) issuers or by
a third party information reporting
contractor.
(c) Time and place for filing. Except
as otherwise provided in this paragraph
(c), returns required to be made under
paragraph (a) of this section must be
filed with the Internal Revenue Service
Center designated on the prescribed
form or in its instructions on or before
February 28 (March 31 if filed
electronically) of the year following the
calendar year in which the reportable
policy sale or the transfer of the contract
to a foreign person occurred. If the
6050Y(b) issuer does not receive notice
of a transfer to a foreign person until
after January 31 of the calendar year
following the year in which the transfer
occurred, returns required to be made
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under paragraph (a) of this section must
be filed by the later of February 28
(March 31 if filed electronically) of the
calendar year following the year in
which the transfer occurred or thirty
days after the date notice is received.
See § 1.6050Y–1(b)(2) for transition
rules.
(d) Requirement of and time for
furnishing statements—(1) Requirement
of furnishing statement. Every 6050Y(b)
issuer filing a return required by
paragraph (a) of this section must
furnish to each seller that is a reportable
policy sale payment recipient or makes
a transfer to a foreign person and whose
name is required to be set forth in the
return a written statement showing the
information required by paragraph (a) of
this section with respect to that seller
and the name, address, and phone
number of the information contact of the
person filing the return. This contact
information must provide direct access
to a person that can answer questions
about the statement.
(2) Time for furnishing statement.
Except as otherwise provided in this
paragraph (d)(2), each statement
required by paragraph (d)(1) of this
section to be furnished to any seller
must be furnished on or before February
15 of the year following the calendar
year in which the reportable policy sale
or transfer to a foreign person occurred.
If a 6050Y(b) issuer does not receive
notice of a transfer to a foreign person
until after January 31 of the calendar
year following the year in which the
transfer occurred, each statement
required to be made under paragraph (d)
of this section must be furnished by the
date thirty days after the date notice is
received. See § 1.6050Y–1(b)(2) for
transition rules.
(3) Unified reporting. Each 6050Y(b)
issuer subject to the information
reporting requirement of paragraph
(d)(1) of this section must satisfy that
requirement, but a 6050Y(b) issuer’s
reporting obligation is deemed satisfied
if the information required by paragraph
(d)(1) of this section with respect to that
6050Y(b) issuer is timely reported on
behalf of that 6050Y(b) issuer consistent
with forms, instructions, and other IRS
guidance by one or more other 6050Y(b)
issuers or by a third party information
reporting contractor.
(e) Notice of rescission of a reportable
policy sale or transfer of an insurance
contract to a foreign person. Any
6050Y(b) issuer that has filed a return
required by section 6050Y(b)(1) and this
section with respect to a reportable
policy sale or transfer of an insurance
contract to a foreign person must file a
corrected return within 15 calendar
days of the receipt of notice of the
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15:58 Mar 22, 2019
Jkt 247001
rescission of the reportable policy sale
or transfer of the insurance contract to
a foreign person. Any 6050Y(b) issuer
that has furnished a written statement
under section 6050Y(b)(2) and this
section with respect to the reportable
policy sale or transfer of the insurance
contract to a foreign person must
furnish the recipient of that statement
with a corrected statement within 15
calendar days of the receipt of notice of
the rescission of the reportable policy
sale or transfer of the insurance contract
to a foreign person.
(f) Exceptions to requirement to file. A
6050Y(b) issuer is not required to file an
information return under paragraph (a)
of this section when either paragraph
(f)(1) or (2) of this section applies.
(1) Except as otherwise provided in
this paragraph (f)(1), the 6050Y(b) issuer
obtains documentation upon which it
may rely to treat a seller of the contract
as a foreign beneficial owner in
accordance with § 1.1441–1(e)(1)(ii),
applying in such case the provisions of
§ 1.1441–1 by substituting the term
‘‘6050Y(b) issuer’’ for the term
‘‘withholding agent’’ and without regard
to the fact that that these provisions
apply only to amounts subject to
withholding under chapter 3 of subtitle
A of the Internal Revenue Code. A
6050Y(b) issuer may also obtain from a
seller that is a partnership or trust, in
addition to documentation establishing
the entity’s foreign status, a written
certification from the entity that no
beneficial owner of any portion of the
proceeds of the sale is a United States
person. In such a case, the issuer may
rely upon the written certification to
treat the partnership or trust as a foreign
beneficial owner for purposes of this
paragraph (f)(1) provided that the seller
does not have actual knowledge that a
United States person is the beneficial
owner of all or a portion of the proceeds
of the sale. See § 1.1441–1(c)(6)(ii) for
the definition of beneficial owner that
applies for purposes of this paragraph
(f)(1). Additionally, for certifying its
status as a foreign beneficial owner (as
applicable) for purposes of this
paragraph (f)(1), a seller that is required
to report any of the income from the sale
as effectively connected with the
conduct of a trade or business in the
United States under section 864(b) is
required to provide to the 6050Y(b)
issuer a Form W–8ECI, Certificate of
Foreign Person’s Claim that Income is
Effectively Connected with the Conduct
of a Trade or Business in the United
States. If a 6050Y(b) issuer obtains a
Form W–8ECI from a seller with respect
to the sale or has reason to know that
income from the sale is effectively
connected with the conduct of a trade
PO 00000
Frm 00030
Fmt 4702
Sfmt 4702
11027
or business in the United States under
section 864(b), the exception to
reporting described in this paragraph
(f)(1) does not apply.
(2) The 6050Y(b) issuer receives
notice of a transfer to a foreign person,
but does not receive a RPSS with
respect to the transfer, provided that, at
the time the notice is received—
(i) The 6050Y(b) issuer is not a United
States person;
(ii) The life insurance contract (or
interest therein) transferred is not on the
life of a United States person; and
(iii) The 6050Y(b) issuer has not
classified the seller as a United States
person in its books and records.
(g) Cross-reference to penalty
provisions—(1) Failure to file correct
information return. For provisions
relating to the penalty provided for
failure to file timely a correct
information return required under
section 6050Y(b)(1) and this section, see
section 6721 and § 301.6721–1 of this
chapter. See § 301.6724–1 of this
chapter for the waiver of a penalty if the
failure is due to reasonable cause and is
not due to willful neglect.
(2) Failure to furnish correct
statement. For provisions relating to the
penalty provided for failure to furnish a
correct statement to identified persons
under section 6050Y(b)(2) and this
section, see section 6722 and
§ 301.6722–2 of this chapter. See
§ 301.6724–1 of this chapter for the
waiver of a penalty if the failure is due
to reasonable cause and is not due to
willful neglect.
■ Par. 7. Section 1.6050Y–4 is added to
read as follows:
§ 1.6050Y–4 Information reporting by
payors for reportable death benefits.
(a) Requirement of reporting. Except
as provided in paragraph (e) of this
section, every person that is a payor of
reportable death benefits during any
calendar year must file a separate
information return for such calendar
year with the Internal Revenue Service
(IRS) for each reportable death benefits
payment recipient in the form and
manner prescribed by the IRS. The
return must include the following
information with respect to the
reportable death benefits payment
recipient to which the return relates:
(1) The name, address, and taxpayer
identification number (TIN) of the
payor;
(2) The name, address, and TIN of the
reportable death benefits payment
recipient;
(3) The date of the payment;
(4) The gross amount of payments
made to the reportable death benefits
payment recipient during the taxable
year;
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25MRP1
11028
Federal Register / Vol. 84, No. 57 / Monday, March 25, 2019 / Proposed Rules
(5) The payor’s estimate of the
investment in the contract with respect
to the buyer, limited to the payor’s
estimate of the buyer’s investment in the
contract with respect to the interest for
which the reportable death benefits
payment recipient was paid; and
(6) Any other information that is
required by the form or its instructions.
(b) Time and place for filing. Except
as otherwise provided in § 1.6050Y–
1(b)(3), returns required to be made
under this section must be filed with the
Internal Revenue Service Center
designated in the instructions for the
form on or before February 28 (March 31
if filed electronically) of the year
following the calendar year in which the
payment of reportable death benefits
was made.
(c) Requirement of and time for
furnishing statements—(1) Requirement
of furnishing statement. Every person
required to file an information return
under paragraph (a) of this section must
furnish to each reportable death benefits
payment recipient whose name is
required to be set forth in that return a
written statement showing the
information required by paragraph (a) of
this section with respect to that
reportable death benefits payment
recipient and the name, address, and
phone number of the information
contact of the payor. This contact
information must provide direct access
to a person that can answer questions
about the statement.
(2) Time for furnishing statement.
Each statement required by paragraph
(c)(1) of this section to be furnished to
any reportable death benefits payment
recipient must be furnished on or before
January 31 of the year following the
calendar year in which the payment of
reportable death benefits was made.
However, see § 1.6050Y–1(b)(3) for
transition rules.
(d) Notice of rescission of a reportable
policy sale. Any person that has filed a
return required by section 6050Y(c) and
this section with respect to a payment
of reportable death benefits must file a
corrected return within 15 calendar
days of the receipt of notice of the
rescission of the buyer’s reportable
policy sale. Any person that has
furnished a written statement under
section 6050Y(c)(2) and this section
with respect to a payment of reportable
death benefits must furnish the
recipient of that statement with a
corrected statement within 15 calendar
days of the receipt of notice of the
rescission of the buyer’s reportable
policy sale.
(e) Exceptions to requirement to file.
A payor is not required to file an
information return under paragraph (a)
VerDate Sep<11>2014
15:58 Mar 22, 2019
Jkt 247001
of this section with respect to a payment
of reportable death benefits when either
paragraph (e)(1) or (2) of this section
applies.
(1) Except as otherwise provided in
this paragraph (e)(1), the payor obtains
documentation in accordance with
§ 1.1441–1(e)(1)(ii) upon which it may
rely to treat the reportable death benefits
payment recipient as a foreign beneficial
owner of the reportable death benefits,
applying in such case the provisions of
§ 1.1441–1 by substituting the term
‘‘payor’’ for the term ‘‘withholding
agent’’ and without regard to the fact
that the provisions apply only to
amounts subject to withholding under
chapter 3 of subtitle A of the Internal
Revenue Code. A payor may also obtain
from a partnership or trust that is a
reportable death benefits recipient, in
addition to documentation establishing
the entity’s foreign status, a written
certification from the entity that no
beneficial owner of any portion of the
reportable death benefits payment is a
United States person. In such a case, a
payor may rely upon the written
certification to treat the partnership or
trust as a foreign beneficial owner for
purposes of this paragraph (e)(1)
provided that the payor does not have
actual knowledge that a United States
person is the beneficial owner of all or
a portion of the reportable death
benefits payment. See § 1.1441–
1(c)(6)(ii) for the definition of beneficial
owner that applies for purposes of this
paragraph (e)(1). Additionally, for
certifying its status as a foreign
beneficial owner (as applicable) for
purposes of this paragraph (e)(1), a
reportable death benefits payment
recipient that is required to report any
of the income from the sale as
effectively connected with the conduct
of a trade or business in the United
States under section 864(b) is required
to provide to the payor a Form W–8ECI,
Certificate of Foreign Person’s Claim
that Income is Effectively Connected
with the Conduct of a Trade or Business
in the United States. If a payor obtains
a Form W–8ECI from a reportable death
benefits payment recipient with respect
to the payment of reportable death
benefits or has reason to know that the
payment is effectively connected with
the conduct of a trade or business of the
recipient in the United States under
section 864(b), the exception to
reporting described in this paragraph
(e)(1) does not apply.
(2) The buyer obtained the life
insurance contract (or interest therein)
under which reportable death benefits
are paid in a reportable policy sale to
which the exception to reporting
described in § 1.6050Y–3(f)(2) applies.
PO 00000
Frm 00031
Fmt 4702
Sfmt 4702
(f) Cross-reference to penalty
provisions—(1) Failure to file correct
information return. For provisions
relating to the penalty provided for
failure to file timely a correct
information return required under
section 6050Y(c)(1) and this section, see
section 6721 and § 301.6721–1 of this
chapter. See § 301.6724–1 of this
chapter for the waiver of a penalty if the
failure is due to reasonable cause and is
not due to willful neglect.
(2) Failure to furnish correct
statement. For provisions relating to the
penalty provided for failure to furnish a
correct statement to identified persons
under section 6050Y(c)(2) and this
section, see section 6722 and
§ 301.6722–2 of this chapter. See
§ 301.6724–1 of this chapter for the
waiver of a penalty if the failure is due
to reasonable cause and is not due to
willful neglect.
Kirsten Wielobob,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2019–05400 Filed 3–22–19; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF LABOR
Mine Safety and Health Administration
30 CFR Parts 57, 70, 72, and 75
[Docket No. MSHA–2014–0031]
RIN 1219–AB86
Exposure of Underground Miners to
Diesel Exhaust
Mine Safety and Health
Administration, Labor.
ACTION: Request for information;
extension of comment period.
AGENCY:
In response to requests from
the public, the Mine Safety and Health
Administration (MSHA) is extending
the comment period for the Agency’s
request for information on Exposure of
Underground Miners to Diesel Exhaust.
This extension will provide
stakeholders an opportunity to review
and comment on information presented
at the Diesel Exhaust Health Effects
Partnership meetings that are
anticipated for 2019 and 2020.
DATES: The comment period for the
request for information, published on
June 8, 2016 (81 FR 36826), which was
scheduled to close on March 26, 2019
(58 FR 12904) is extended. Comments
must be received on or before midnight
Eastern Daylight Time on September 25,
2020.
ADDRESSES: Submit comments and
informational materials for the
SUMMARY:
E:\FR\FM\25MRP1.SGM
25MRP1
]]>Agencies
[Federal Register Volume 84, Number 57 (Monday, March 25, 2019)]
[Proposed Rules]
[Pages 11009-11028]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05400]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-103083-18]
RIN 1545-BO49
Information Reporting for Certain Life Insurance Contract
Transactions and Modifications to the Transfer for Valuable
Consideration Rules
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking; notification of public hearing.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations providing guidance
on new information reporting obligations under section 6050Y related to
reportable policy sales of life insurance contracts and payments of
reportable death benefits. The proposed regulations also provide
guidance on the amount of death benefits excluded from gross income
under section 101 following a reportable policy sale. The proposed
regulations affect parties involved in certain life insurance contract
transactions, including reportable policy sales, transfers of life
insurance contracts to foreign persons, and payments of reportable
death benefits. This document invites comments and provides a notice of
a public hearing on these proposed regulations.
DATES: Written or electronic comments must be received by May 9, 2019.
Requests to speak and outlines of topics to be discussed at the public
hearing scheduled for June 5, 2019, at 10 a.m. must be received by May
9, 2019.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-103083-18), Room
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
103083-18), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue NW, Washington, DC 20224, or sent electronically via the Federal
eRulemaking Portal at www.regulations.gov (IRS REG-103083-18).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Kathryn M. Sneade, (202) 317-6995; concerning submissions of comments
and requests to speak at the public hearing, Regina Johnson, (202) 317-
6901 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review under OMB Control Numbers 1545-0119, 1545-1621, and 1545-
2281 in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(d)). In general, the collection of information in the proposed
regulations is required under section 6050Y of the Internal Revenue
Code (Code): (1) The requirement under Sec. 1.6050Y-2 of the proposed
regulations for an acquirer to report certain information about
payments made in reportable policy sales is required under section
6050Y(a); (2) the requirement under Sec. 1.6050Y-3 of the proposed
regulations for an issuer to report certain information about
transferors of life insurance contracts is required under section
6050Y(b); and (3) the requirement under Sec. 1.6050Y-4 of the proposed
regulations for a payor to report certain information about payments of
reportable death benefits is required under section 6050Y(c). Section
1.6050Y-3(a)(3) of the proposed regulations would require the issuer to
report to the seller and the IRS the amount the seller would have
received if the seller had surrendered the life insurance contract on
the date of the reportable policy sale. This information is necessary
to allow the seller and the IRS to determine the character of all or a
portion of the seller's taxable income from the sale of the life
insurance contract (capital or ordinary). Sections 1.6050Y-3(f)(1) and
1.6050Y-4(e)(1) of the proposed regulations contain reporting
exceptions for certain foreign beneficial owners. To determine
qualification for these reporting exceptions, Sec. Sec. 1.6050Y-
3(f)(1) and 1.6050Y-4(e)(1) would require that certain foreign
beneficial owners provide a Form W-8ECI, ``Certificate of Foreign
Person's Claim that Income is Effectively Connected with the Conduct of
a Trade or Business in the United States,'' to certain persons. This
information is necessary to document whether the reporting exception in
either Sec. 1.6050Y-3(f)(1) or Sec. 1.6050Y-4(e)(1) applies in a
particular situation.
The likely respondents to the collection of information are (1)
Entities acquiring life insurance contracts in reportable policy sales;
(2) life insurance companies; (3) life insurance companies and other
entities making payments of reportable death benefits; and (4) entities
receiving payments of reportable death benefits.
The burden for the collection of information contained in Sec.
1.6050Y-2 of the proposed regulations will be reflected in the burden
on the form that the IRS created to request the information in section
6050Y(a) and Sec. 1.6050Y-2 of the proposed regulations (Form 1099-LS,
``Reportable Life Insurance Sale''). The burden for the collection of
information contained in Sec. 1.6050Y-3 of the proposed regulations
will be reflected in the burden on the form that the IRS created to
request the information in section 6050Y(b) and Sec. 1.6050Y-3 of the
proposed regulations (Form 1099-SB, ``Seller's Investment in Life
Insurance Contract''). The OMB Control Number for both of these forms
is 1545-2281. The burden for the collection of information contained in
Sec. 1.6050Y-4 of the proposed regulations will be reflected in the
burden on the Form 1099-R, ``Distributions From Pensions, Annuities,
Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.''
(OMB Control Number 1545-0119). The burden for the collection of
information contained in Sec. Sec. 1.6050Y-3(f)(1) and 1.6050Y-4(e)(1)
of the proposed regulations will be reflected in the burden on the Form
W-8ECI (OMB Control Number 1545-1621), when the burden is revised to
reflect the additional collection of information in Sec. Sec. 1.6050Y-
3(f)(1) and 1.6050Y-4(e)(1) of the proposed regulations.
Comments on the collection of information should be sent to the
Office of Management and Budget, Attn: Desk Officer for the Department
of the Treasury, Office of Information and Regulatory Affairs,
Washington, DC 20503, with copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, SE:CAR:MP:T:T:SP, Washington, DC
20224. Comments on
[[Page 11010]]
the collection of information should be received by May 24, 2019.
Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the IRS, including whether the
information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information;
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Background
This document contains proposed amendments to 26 CFR part 1 under
sections 101 and 6050Y of the Code (proposed regulations). The proposed
regulations implement recent legislative changes to sections 101 and
6050Y by sections 13520 and 13522 of ``[a]n Act to provide for
reconciliation pursuant to titles II and V of the concurrent resolution
on the budget for fiscal year 2018,'' Public Law 115-97, 131 Stat.
2054, 2149 (Act). The proposed regulations under section 101 amend
final regulations under section 101 published in the Federal Register
on November 26, 1960 (25 FR 11402), as subsequently amended on December
24, 1964 (29 FR 18356), September 27, 1982 (47 FR 42337), and July 26,
2007 (72 FR 41159) (existing regulations).
Section 13520 of the Act added section 6050Y to chapter 61
(Information and Returns) of subtitle A of the Code (chapter 61).
Section 6050Y imposes information reporting obligations related to
certain life insurance contract transactions, including reportable
policy sales and payments of reportable death benefits. Section 6050Y
provides that each of the returns required by section 6050Y is to be
made ``at such time and in such manner as the Secretary shall
prescribe.'' The proposed regulations under section 6050Y implement
section 6050Y. The proposed regulations specify the manner in which and
time at which the information reporting obligations must be satisfied.
The proposed regulations also provide definitions and rules that govern
the application of the information reporting obligations.
Section 13522 of the Act amended section 101. New section 101(a)(3)
defines the term ``reportable policy sale'' and provides rules for
determining the amount of death benefits excluded from gross income
following a reportable policy sale. The proposed regulations under
section 101 provide definitions applicable under sections 101 and 6050Y
and guidance for determining the amount of death benefits excluded from
gross income following a reportable policy sale.
Notice 2018-41, 2018-20 I.R.B. 584, described sections 13520 and
13522 of the Act and the regulations the Department of the Treasury
(Treasury Department) and the IRS expected to propose under sections
101 and 6050Y. The Treasury Department and the IRS received comments in
response to the notice and considered these comments in developing
these proposed regulations.
Explanation of Provisions
Section 6050Y imposes information reporting obligations related to
reportable policy sales of life insurance contracts and payments of
reportable death benefits. Section 1.6050Y-1 of the proposed
regulations contains definitional provisions. Sections 1.6050Y-2,
1.6050Y-3, and 1.6050Y-4 of the proposed regulations provide guidance
on the reporting obligations imposed by section 6050Y(a), (b), and (c),
respectively.
1. Section 1.6050Y-1: Definitions
The definitions set forth in Sec. 1.6050Y-1 of the proposed
regulations apply for purposes of Sec. Sec. 1.6050Y-1 through -4 of
the proposed regulations.
Under the proposed regulations, ``life insurance contract,'' also
referred to as a life insurance policy, is defined by reference to
section 7702(a). See Sec. 1.6050Y-1(a)(9) of the proposed regulations.
``Interest in a life insurance contract,'' ``transfer of an interest in
a life insurance contract,'' ``direct acquisition of an interest in a
life insurance contract,'' ``indirect acquisition of an interest in a
life insurance contract,'' and ``reportable policy sale'' are defined
by reference to the proposed regulations under section 101. See Sec.
1.6050Y-1(a)(3), (5), (6), (14), and (19) of the proposed regulations.
``Foreign person'' means a person that is not a ``United States
person,'' as defined in section 7701(a)(30). See Sec. 1.6050Y-1(a)(4)
of the proposed regulations.
Section 6050Y(a) requires any person that acquires a life insurance
contract or any interest in a life insurance contract in a reportable
policy sale during any taxable year to report certain information
regarding the transaction, including information about each recipient
of payment in the reportable policy sale. Under the proposed
regulations, ``acquirer'' means any person that, directly or
indirectly, acquires an interest in a life insurance contract in a
reportable policy sale. See Sec. 1.6050Y-1(a)(1) of the proposed
regulations.
Section 6050Y(d)(1) defines ``payment,'' with respect to any
reportable policy sale, to mean the amount of cash and the fair market
value of any other consideration transferred in the sale. Under the
proposed regulations, ``reportable policy sale payment'' means the
total amount of cash and the fair market value of any other
consideration transferred, or to be transferred, in a reportable policy
sale, including any amount of a reportable policy sale payment
recipient's debt assumed by the acquirer in a reportable policy sale.
See Sec. 1.6050Y-1(a)(15) of the proposed regulations. An interest in
a life insurance contract may be acquired directly, from the direct
holder of the interest, or indirectly, through the acquisition of an
ownership interest in an entity that holds an interest in a life
insurance contract. See Sec. Sec. 1.101-1(e)(3)(i) and (ii) and
1.6050Y-1(a)(3) and (5) of the proposed regulations. In the case of an
indirect acquisition of an interest in a life insurance contract that
is a reportable policy sale, the reportable policy sale payment is the
amount of cash and the fair market value of any other consideration
transferred for the ownership interest in the entity that is
appropriately allocable to the interest in the life insurance contract
held by the entity. See Sec. 1.6050Y-1(a)(15) of the proposed
regulations. The proposed regulations require the acquirer to report
the aggregate amount of reportable policy sale payments made, or to be
made, with respect to a reportable policy sale. See Sec. 1.6050Y-
2(a)(5) of the proposed regulations. Accordingly, when an acquirer
makes payments in installments in more than one year, the acquirer
reports the total amount of all payments in the year of the policy
sale.
``Reportable policy sale payment recipient'' means any person that
receives a reportable policy sale payment in a reportable policy sale.
See Sec. 1.6050Y-1(a)(16) of the proposed regulations. The seller in a
reportable policy sale is a reportable policy sale
[[Page 11011]]
payment recipient if the seller receives a reportable policy sale
payment. A broker or other intermediary that retains a portion of the
cash or other consideration transferred in a reportable policy sale is
also a reportable policy sale payment recipient. Id. The aggregate
amount of all reportable policy sale payments made with respect to a
reportable policy sale must be reported under section 6050Y(a). The
objective of the proposed regulations is for the acquirer to report the
net payment, if any, made to each person involved in a reportable
policy sale. Accordingly, if the acquirer transfers cash or other
consideration to a broker in a reportable policy sale, the broker is a
reportable policy sale payment recipient, and the reportable policy
sale payment made to the broker is the amount of cash and the fair
market value of any other consideration retained by the broker. The
reportable policy sale payment made to the seller would be the amount
of cash and fair market value of any other consideration transferred to
the seller, including any amount of the seller's debt assumed by the
acquirer in a reportable policy sale, and it would not include the
amount of the reportable policy sale payment made to the broker.
Comments received on Notice 2018-41 suggested that the amount of
the payment to a seller in a reportable policy sale that should be
reported under section 6050Y(a) should be the amount actually paid to
the seller. These comments were taken into consideration in developing
the definition of ``reportable policy sale payment recipient'' in the
proposed regulations, as well as the reporting requirements in the
proposed regulations, which require the acquirer in a reportable policy
sale to report, with respect to each reportable policy sale payment
recipient, the aggregate amount of reportable policy sale payments made
to that person. See Sec. 1.6050Y-2(a)(5) of the proposed regulations.
Comments received on Notice 2018-41 suggested that no reporting
should be required for payments of ancillary costs and expenses in a
reportable policy sale, including broker fees, securities intermediary
fees, and other fees and expenses. Comments noted that the person
paying these expenses is normally paying them in connection with the
conduct of a trade or business, and is therefore required to report
these amounts to payees in accordance with applicable rules. The
proposed regulations require the acquirer in a reportable policy sale
to report all reportable policy sale payments made with respect to the
reportable policy sale, meaning all amounts of cash and the fair market
value of any other consideration transferred in the reportable policy
sale, including any amount of a reportable policy sale payment
recipient's debt assumed by the acquirer in a reportable policy sale.
The Treasury Department and the IRS are considering whether reportable
policy sale payments should be defined to exclude payments of any
ancillary costs and expenses and request comments regarding the types
of payments made by acquirers in reportable policy sales, the
recipients of those payments, and existing reporting requirements
applicable to those payments.
Section 6050Y(b) requires issuers of life insurance contracts
receiving a written statement furnished by an acquirer under section
6050Y(a) and Sec. 1.6050Y-2 of the proposed regulations (a
``reportable policy sale statement'' or ``RPSS,'' under Sec. 1.6050Y-
1(a)(17) of the proposed regulations) or notice of a transfer to a
foreign person to report certain information regarding sellers. Under
the proposed regulations, ``seller'' means any person that holds an
interest in a life insurance contract and transfers that interest, or
any part of that interest, to an acquirer in a reportable policy sale
or any person that owns a life insurance contract and transfers title
to, possession of, or legal ownership of that life insurance contract
to a foreign person. See Sec. 1.6050Y-1(a)(18) of the proposed
regulations. ``Notice of a transfer to a foreign person'' means any
notice of a transfer of a life insurance contract (i.e., a transfer of
title to, possession of, or legal ownership of the life insurance
contract) received by a 6050Y(b) issuer (as that term is defined in
Sec. 1.6050Y-1(a)(8)(iii)(B) of the proposed regulations). See Sec.
1.6050Y-1(a)(10) of the proposed regulations. Notice of a transfer to a
foreign person includes information provided for nontax purposes such
as a change of address notice for purposes of sending statements or for
other purposes, and information relating to loans, premiums, or death
benefits with respect to the contract, unless the 6050Y(b) issuer knows
that no transfer of the life insurance contract has occurred or knows
the transferee is a United States person. Id. For this purpose, a
6050Y(b) issuer may rely on a Form W-9, Request for Taxpayer
Identification Number and Certification, or a valid substitute form,
that meets the requirements of Sec. 1.1441-1(d)(2) (substituting
``6050Y(b) issuer'' for ``withholding agent''), that indicates the
transferee is a United States person.
The definition of ``issuer'' under the proposed regulations depends
on the context in which the term is used. In general, the term
``issuer'' means, on any date, with respect to any interest in a life
insurance contract, any person that bears any part of the risk with
respect to the life insurance contract on that date and any person
responsible on that date for administering the contract, including
collecting premiums and paying death benefits. See Sec. 1.6050Y-
1(a)(8)(i) of the proposed regulations. For instance, if a reinsurer
reinsures on an indemnity basis all or a portion of the risks that the
original issuer (and continuing contract administrator) might otherwise
have incurred with respect to a life insurance contract, both the
reinsurer and the original issuer of the contract are issuers of the
life insurance contract. Id.
Additionally, any designee of an issuer for purposes of section
6050Y reporting purposes is generally also considered an issuer. See
Sec. 1.6050Y-1(a)(8)(i) of the proposed regulations. Under Sec.
1.6050Y-1(a)(8)(iv) of the proposed regulations, a person is the
designee of an issuer for purposes of section 6050Y reporting under
Sec. 1.6050Y-1(a)(8) only if so designated in writing, including
electronically. The designation must be signed and acknowledged, in
writing or electronically, by the person named as designee, or that
person's representative, and by the issuer making the designation, or a
representative of that issuer.
For purposes of information reporting by the acquirer under section
6050Y(a) and Sec. 1.6050Y-2 of the proposed regulations, the
``6050Y(a) issuer'' is the issuer that is responsible for administering
the life insurance contract, including collecting premiums and paying
death benefits under the contract, on the date of the reportable policy
sale. See Sec. 1.6050Y-1(a)(8)(ii) of the proposed regulations.
For purposes of information reporting by the issuer under section
6050Y(b) and Sec. 1.6050Y-3 of the proposed regulations, the
definition of ``6050Y(b) issuer'' depends on whether the reporting
obligation results from a reportable policy sale and the receipt of a
RPSS, or by a transfer to a foreign person and the receipt of notice of
a transfer to a foreign person. See Sec. 1.6050Y-1(a)(8)(iii)(A) of
the proposed regulations (applicable to reportable policy sales) and
Sec. 1.6050Y-1(a)(8)(iii)(B) of the proposed regulations (applicable
to transfers to foreign persons).
With respect to a life insurance contract, or an interest therein,
that is
[[Page 11012]]
transferred in a reportable policy sale, the 6050Y(b) issuer is any
person that (1) Receives a RPSS with respect to the life insurance
contract or interest therein (or, in the case of a designee, receives
notice that the issuer for whom it serves as designee received a RPSS),
and (2) is or was, on or before the date of receipt of the RPSS, an
issuer (as defined in Sec. 1.6050Y-1(a)(8)(i) of the proposed
regulations) with respect to the life insurance contract. See Sec.
1.6050Y-1(a)(8)(iii)(A) of the proposed regulations. More than one
person may meet this definition, but a 6050Y(b) issuer's reporting
obligation is deemed satisfied if the information required by section
6050Y(b) and Sec. 1.6050Y-3 is timely reported by any other 6050Y(b)
issuer. See Sec. 1.6050Y-3(b) of the proposed regulations.
With respect to a life insurance contract transferred to a foreign
person, the 6050Y(b) issuer generally is any person that (1) Receives
notice of the transfer of the life insurance contract to a foreign
person, and (2) is or was, on the date of transfer or on the date of
receipt of the notice, an issuer (as defined in Sec. 1.6050Y-
1(a)(8)(i) of the proposed regulations), with respect to the life
insurance contract. See Sec. 1.6050Y-1(a)(8)(iii)(B) of the proposed
regulations. However, a person is not a 6050Y(b) issuer under Sec.
1.6050Y-1(a)(8)(iii)(B) of the proposed regulations if (1) That person
(or, in the case of a designee, the issuer for whom it serves as
designee) is not responsible for administering the life insurance
contract, including collecting premiums and paying death benefits under
the contract, on the date the notice of a transfer to a foreign person
of a life insurance contract is received, and (2) that person, or its
designee, provides the 6050Y(b) issuer that is responsible for
administering the life insurance contract, including collecting
premiums and paying death benefits under the contract, on that date
with such notice and any available information necessary to accomplish
reporting under section 6050Y(b) and Sec. 1.6050Y-3 of the proposed
regulations. See Sec. 1.6050Y-1(a)(8)(iii)(B) of the proposed
regulations.
Section 6050Y(c) imposes reporting requirements on any person that
makes a payment of reportable death benefits during any taxable year.
Section 6050Y(d)(4) defines the term ``reportable death benefits'' to
mean amounts paid by reason of the death of the insured under a life
insurance contract that has been transferred in a reportable policy
sale. The proposed regulations clarify that the amounts must be
attributable to an interest in the life insurance contract that was
transferred in a reportable policy sale. See Sec. 1.6050Y-1(a)(12) of
the proposed regulations. For instance, if the original policyholder of
a life insurance contract transfers a 50 percent interest in the life
insurance contract in a reportable policy sale, amounts paid by reason
of the death of the insured that are attributable to the 50 percent
interest retained by the original policyholder are not reportable death
benefits.
The proposed regulations define ``payor'' to mean any person making
a payment of reportable death benefits and ``reportable death benefits
payment recipient'' to mean any person that receives reportable death
benefits as a beneficiary under the life insurance contract or as the
holder of an interest in the life insurance contract. See Sec.
1.6050Y-1(a)(11) and (13) of the proposed regulations. Comments
received on Notice 2018-41 suggested that ``payor'' be defined the same
as ``issuer'' for purposes of section 6050Y. The proposed regulations
do not adopt this suggestion, but comments are requested as to whether
payor should be so narrowly defined, or should also include any holder
of an interest in a life insurance contract that receives reportable
death benefits attributable to that interest and is contractually
obligated to pay part or all of the proceeds to the beneficial owner of
the interest. Comments are also requested as to whether, for purposes
of reporting under section 6050Y(c), reportable death benefits payment
recipients should include, in addition to any person that receives
reportable death benefits as a beneficiary under the life insurance
contract, any person that receives reportable death benefits as the
holder of an interest in the life insurance contract.
Section 6050Y(b) and Sec. 1.6050Y-3 of the proposed regulations
require issuers to report the seller's investment in the contract to
the seller, and section 6050Y(c) and Sec. 1.6050Y-4 of the proposed
regulations require payors to report the payor's estimate of the
buyer's investment in the contract to the reportable death benefits
payment recipient. The ``buyer,'' with respect to any interest in a
life insurance contract that has been transferred in a reportable
policy sale, is the person that was the most recent acquirer of that
interest in a reportable policy sale as of the date reportable death
benefits are paid under the contract. See Sec. 1.6050Y-1(a)(2) of the
proposed regulations.
Under the proposed regulations, the meaning of ``investment in the
contract'' depends on whose investment in the contract is being
determined. With respect to the original policyholder of a life
insurance contract, Sec. 1.6050Y-1(a)(7)(i) of the proposed
regulations provides that ``investment in the contract'' has the same
meaning as under section 72(e)(6). With respect to the original
policyholder, the issuer will have all of the information required to
determine that amount.
With respect to anyone other than the original policyholder, the
issuer or payor may lack information required to determine the seller's
or buyer's investment in the contract as defined in section 72(e)(6),
such as the aggregate amount of consideration paid for the contract and
the extent to which amounts received under the contract were excludable
from gross income. In this context, Sec. 1.6050Y-1(a)(7)(i) of the
proposed regulations provides that ``investment in the contract'' has
the same meaning as ``estimate of investment in the contract.'' Section
1.6050Y-1(a)(7)(ii) of the proposed regulations defines ``estimate of
investment in the contract'' with respect to any person other than the
original policyholder to mean, on any date, the aggregate amount of
premiums paid for the contract by that person before that date, less
the aggregate amount received under the contract by that person before
that date to the extent such information is known to or can reasonably
be estimated by the issuer or payor.
2. Section 1.6050Y-2: Reporting of Payments by Acquirer in a Reportable
Policy Sale
Section 6050Y(a) requires reporting of payments made by an acquirer
in a reportable policy sale. Section 1.6050Y-2(a) of the proposed
regulations sets forth the requirement of information reporting
applicable to acquirers in reportable policy sales under section
6050Y(a)(1) and describes the information that must be reported.
The proposed regulations allow for unified reporting by the
acquirers in a series of prearranged transfers of any interest in a
life insurance contract. See Sec. 1.6050Y-2(b) and (d)(3) of the
proposed regulations. A series of prearranged transfers of an interest
in a life insurance contract may include transfers in which one or more
persons serve as intermediaries. Such intermediaries may acquire title
or possession of an interest in a life insurance contract for state law
purposes as nominee on behalf of another person or persons. Comments
received on Notice 2018-41 suggested that a rule allowing unified
reporting be adopted with respect to acquirers in a series of
prearranged transfers, and these comments were taken into
[[Page 11013]]
consideration in developing the rules in the proposed regulations.
Section 1.6050Y-2(c) of the proposed regulations sets forth the
time and place for filing returns required under section 6050Y(a)(1).
Section 1.6050Y-2(d) of the proposed regulations sets forth the
requirement under section 6050Y(a)(2) for the acquirer in a reportable
policy sale to furnish a written statement to certain persons with
respect to whom information is required on the return required by
section 6050Y(a)(1). These persons are the recipients of payments in
reportable policy sales (reportable policy sale payment recipients) and
the 6050Y(a) issuers.
A written statement provided to a reportable policy sale payment
recipient is not required to include information with respect to any
other reportable policy sale payment recipient in the reportable policy
sale. See Sec. 1.6050Y-2(d)(1)(i) of the proposed regulations. For
instance, the statement is not required to provide information about
reportable policy sale payments to any other reportable policy sale
payment recipient. Id. The contact information of the person furnishing
the written statement must provide direct access to a person that can
answer questions about the statement. Id. Reportable policy sale
payment recipients may use the information in the written statements
furnished by acquirers to determine their taxable income. To facilitate
proper tax reporting, the proposed regulations provide that an acquirer
must furnish any written statement required to be provided to a
reportable policy sale payment recipient no later than February 15 of
the year following the calendar year in which the reportable policy
sale occurs. See Sec. 1.6050Y-2(d)(1)(ii) of the proposed regulations.
The proposed regulations adopt this deadline because a person may be
both a reportable policy sale payment recipient and a seller with
respect to a reportable policy sale, and this deadline for an acquirer
to furnish a written statement to a reportable policy sale payment
recipient coordinates with the deadline in Sec. 1.6050Y-3(d)(2) of the
proposed regulations for a 6050Y(b) issuer that receives a RPSS to
furnish a written statement to a seller.
Generally, a 6050Y(a) issuer that receives a RPSS from an acquirer
becomes a 6050Y(b) issuer subject to reporting obligations under
section 6050Y(b), including the obligation under section 6050Y(b)(2) to
furnish a written statement to the seller in a reportable policy sale.
Because 6050Y(b) issuers' reporting obligation is with respect to
sellers, the proposed regulations provide that acquirers must furnish
the 6050Y(a) issuer with a RPSS with respect to each reportable policy
sale payment recipient that is also a seller. See Sec. 1.6050Y-
2(d)(2)(i)(A) of the proposed regulations. However, an acquirer
acquiring an interest in a life insurance contract in an indirect
acquisition is not required to furnish a RPSS to the 6050Y(a) issuer.
See Sec. 1.6050Y-2(d)(2)(i)(B) of the proposed regulations. As
provided in section 6050Y(a)(2)(B), the proposed regulations provide
that acquirers are not required to set forth the amount of any
reportable policy sale payment in a RPSS furnished to a 6050Y(a)
issuer. See Sec. 1.6050Y-2(d)(2)(i)(A) of the proposed regulations.
Sellers may need the information in the written statements furnished by
6050Y(b) issuers that have received a RPSS to determine their taxable
income. To facilitate proper tax reporting, the proposed regulations
therefore provide that an acquirer must furnish a RPSS to the 6050Y(a)
issuer by the later of (1) 20 days after the reportable policy sale, or
(2) 5 days after the end of the applicable state law rescission period.
See Sec. 1.6050Y-2(d)(2)(ii) of the proposed regulations. However, if
the later date is after January 15 of the year following the calendar
year in which the reportable policy sale occurred, the RPSS must be
furnished by January 15 of the year following the calendar year in
which the reportable policy sale occurred. Id. Section 1.6050Y-3(d)(2)
of the proposed regulations generally requires that the 6050Y(b) issuer
furnish any written statement required by section 6050Y(b)(2) to the
seller no later than February 15 of the year following the calendar
year in which the reportable policy sale occurs.
Section 1.6050Y-2(e) of the proposed regulations requires the
acquirer to correct returns filed under section 6050Y(a)(1) and written
statements furnished under section 6050Y(a)(2) within 15 days of the
acquirer's receipt of notice of the rescission of the related
reportable policy sale.
Section 1.6050Y-2(f) of the proposed regulations sets forth
exceptions to reporting under section 6050Y(a) that may apply to an
acquirer that is a foreign person. These exceptions are described in
section 5 of this Explanation of Provisions.
Section 1.6050Y-2(g) of the proposed regulations describes the
penalty provisions applicable when a person is required under section
6050Y(a) to file an information return, or furnish a written statement,
but fails to do so on or before the prescribed date, fails to include
all of the information required to be shown, or includes incorrect
information.
3. Section 1.6050Y-3: Reporting of Transferor's Investment in the
Contract by 6050Y(b) Issuer (Reportable Policy Sale or Transfer to a
Foreign Person)
Section 6050Y(b) requires the issuer to report certain information
to the seller, including the seller's investment in the contract.
Section 1.6050Y-3(a) of the proposed regulations sets forth the
information reporting requirement applicable to 6050Y(b) issuers under
section 6050Y(b)(1). In addition to the specific information required
to be reported under section 6050Y(b)(1), Notice 2018-41 indicated that
the proposed regulations would require the issuer to report the amount
that would have been received by the policyholder upon surrender of the
contract. A comment received on Notice 2018-41 suggested that an issuer
should not be required to report this amount because the information
may be provided directly by the issuer to the seller upon request.
A purpose of section 6050Y is to provide the seller in a reportable
policy sale and the IRS with the information needed to determine the
seller's taxable income from the sale. In the case of a sale of a cash
value life insurance contract, the gain is ordinary income to the
extent of the amount that would be recognized as ordinary income if the
contract were surrendered, and any excess is capital gain. See Rev.
Rul. 2009-13, 2009-21 I.R.B. 1029. To ensure that the seller and the
IRS have the relevant information needed to calculate the seller's gain
from the sale, including the amount of any capital or ordinary gain,
the proposed regulations do not adopt the suggestion and would require
the 6050Y(b) issuer to report to the seller and the IRS the amount that
would have been received by the policyholder upon surrender of the
contract. The Treasury Department and the IRS have determined that
requiring the reporting of this information is authorized under section
6050Y(b)(1), as well as under sections 6011(a) and 7805.
Section 1.6050Y-3(b) of the proposed regulations provides that a
6050Y(b) issuer's reporting obligation under section 6050Y(b) and Sec.
1.6050Y-3(a) is deemed satisfied if the information required by section
6050Y(b) and Sec. 1.6050Y-3 is timely reported by any other 6050Y(b)
issuer or a third party information reporting contractor.
Section 1.6050Y-3(c) of the proposed regulations sets forth the
time and place for filing returns required under section 6050Y(b)(1).
[[Page 11014]]
Section 1.6050Y-3(d)(1) of the proposed regulations sets forth the
requirement under section 6050Y(b)(2) to furnish statements to certain
persons with respect to whom information is required on the return
required by section 6050Y(b)(1). These persons are the sellers that (1)
Transfer interests in life insurance contracts in reportable policy
sales and are reportable policy sale payment recipients, or (2)
transfer life insurance contracts to foreign persons. The sellers may
use the information in the written statements furnished under section
6050Y(b)(2) to determine their taxable income.
To facilitate proper tax reporting, Sec. 1.6050Y-2(d)(2)(ii) of
the proposed regulations requires acquirers to furnish a RPSS to the
6050Y(a) issuer by January 15 of the year following the calendar year
in which the reportable policy sale occurred, if not earlier, and Sec.
1.6050Y-3(d)(2) of the proposed regulations provides that a 6050Y(b)
issuer generally must furnish any written statement required to be
provided to a seller no later than February 15 of the year following
the calendar year in which the reportable policy sale or transfer to a
foreign person occurs. Comments received on Notice 2018-41 suggested
that issuers be required to furnish written statements required by
section 6050Y(b)(2) to the seller no later than February 15 of the year
following the calendar year in which the reportable policy sale occurs,
noting that this is currently the due date for section 6045 broker
returns and consolidated statements, and brokers also rely on third
party information (e.g., dividend reclassifications). The Treasury
Department and the IRS propose to adopt this suggestion. See Sec.
1.6050Y-3(d)(2) of the proposed regulations. Section 1.6050Y-3(d)(3) of
the proposed regulations provides that a 6050Y(b) issuer's reporting
obligation is deemed satisfied if the information required by Sec.
1.6050Y-3(d)(1) of the proposed regulations with respect to that
6050Y(b) issuer is timely reported on behalf of that 6050Y(b) issuer
consistent with forms, instructions, and other IRS guidance by one or
more other 6050Y(b) issuers or by a third party information reporting
contractor.
Section 1.6050Y-3(e) of the proposed regulations requires the
6050Y(b) issuer to correct returns filed under section 6050Y(b)(1) and
written statements furnished under section 6050Y(b)(2) within 15 days
of the 6050Y(b) issuer's receipt of notice of the rescission of the
related reportable policy sale or transfer to a foreign person.
Section 1.6050Y-3(f) of the proposed regulations sets forth
exceptions to reporting under section 6050Y(b) that may apply to
6050Y(b) issuers. These exceptions are described in section 5 of this
Explanation of Provisions.
Section 1.6050Y-3(g) of the proposed regulations describes the
penalty provisions applicable when a person is required under section
6050Y(b) to file an information return, or furnish a written statement,
but fails to do so on or before the prescribed date, fails to include
all of the information required to be shown, or includes incorrect
information.
4. Section 1.6050Y-4: Reporting of Reportable Death Benefits by Payor
Section 6050Y(c) requires payors to report payments of reportable
death benefits. Section 1.6050Y-4(a) of the proposed regulations sets
forth the requirement of information reporting applicable to payors
under section 6050Y(c)(1).
Section 1.6050Y-4(b) of the proposed regulations sets forth the
time and place for filing returns required under section 6050Y(c)(1).
Section 1.6050Y-4(c)(1) of the proposed regulations sets forth the
requirement under section 6050Y(c)(2) to furnish statements to persons
with respect to whom information is required on the return required by
section 6050Y(c)(1). These persons are the recipients of reportable
death benefits (reportable death benefits payment recipients). The
reportable death benefits payment recipients may use the information in
the written statements furnished under section 6050Y(c)(2) to determine
their taxable income. To facilitate proper tax reporting, Sec.
1.6050Y-4(c)(2) of the proposed regulations provides that a payor must
furnish any written statement required to be provided to a reportable
death benefits payment recipient no later than January 31 of the year
following the calendar year in which the reportable policy sale occurs.
The proposed regulations use January 31 because it is generally the
deadline for furnishing copies of Form 1099-R to recipients.
Section 1.6050Y-4(d) of the proposed regulations requires the payor
to correct returns filed under section 6050Y(c)(1) and written
statements furnished under section 6050Y(c)(2) within 15 days of the
payor's receipt of notice of the rescission of the related reportable
policy sale.
Section 1.6050Y-4(e) of the proposed regulations sets forth
exceptions to reporting under section 6050Y(c) that may apply to
payors. These exceptions are described in the next section of this
Explanation of Provisions.
Section 1.6050Y-4(f) of the proposed regulations describes the
penalty provisions applicable when a person is required under section
6050Y(c) to file an information return, or furnish a written statement,
but fails to do so on or before the prescribed date, fails to include
all of the information required to be shown, or includes incorrect
information.
5. Exceptions To Reporting Under Section 6050Y
The proposed regulations include certain exceptions to the
reporting requirements otherwise imposed on acquirers, 6050Y(b)
issuers, and payors under Sec. Sec. 1.6050Y-2, -3, and -4 of the
proposed regulations, respectively. These exceptions to reporting are
similar in their intended purposes to exceptions included in
regulations issued under other sections in chapter 61 that except
reporting by certain payors and brokers (as applicable based on the
section) with respect to a transaction occurring outside the United
States when no nexus of the transaction to the United States is
identified (under criteria specified in each of the regulations). For
example, Sec. 1.6045-1 generally requires brokers to report the
proceeds of certain sales (such as sales of securities) on a Form 1099-
B, Proceeds from Broker and Barter Exchange Transactions, but includes
an exception to the term ``broker'' that applies to most non-U.S.
securities brokers for sales that are effected outside of the United
States within the meaning provided in those regulations. See Sec.
1.6045-1(a) and (g)(3)(iii). Reporting of payments under several of the
sections in chapter 61 is also excepted when a payor or broker is
permitted to treat the person receiving the payments as a foreign
person. For certain of those excepted payments, withholding and
reporting requirements may instead apply under chapter 3 of subtitle A
of the Code.
Sections 1.6050Y-2(f) and 1.6050Y-3(f)(2) of the proposed
regulations describe exceptions to the reporting otherwise required of
an acquirer and 6050Y(b) issuer under section 6050Y(a) or (b),
respectively, for cases in which the Treasury Department and the IRS
are of the view that a nexus of the sale or life insurance contract to
the United States is insufficient for applying the reporting provisions
of those sections.
Sections 1.6050Y-3(f)(1) and 1.6050Y-4(e)(1) of the proposed
regulations provide that reporting under section 6050Y(b) or (c) is not
required by 6050Y(b) issuers and payors with
[[Page 11015]]
respect to sellers or reportable death benefits payment recipients,
respectively, documented as foreign beneficial owners under the
requirements of the regulations under section 1441. The proposed
regulations include, however, two modifications to those requirements.
First, Sec. Sec. 1.6050Y-3(f)(1) and 1.6050Y-4(e)(1) of the proposed
regulations permit a 6050Y(b) issuer or payor to treat a partnership or
trust as a foreign beneficial owner provided that the 6050Y(b) issuer
or payor obtains a written certification from the partnership or trust
that no beneficial owner (within the meaning of Sec. 1.1441-
1(c)(6)(ii)) of any portion of the sales proceeds or reportable death
benefits payment (as applicable based on the section) received by the
partnership or trust is a United States person, as well as
documentation establishing the partnership's or trust's foreign status.
The treatment described in the preceding sentence does not apply,
however, when the issuer or payor has actual knowledge that a United
States person is a beneficial owner of all or a portion of the sale
proceeds or reportable death benefit payment. Second, Sec. 1.6050Y-
3(f)(1) of the proposed regulations provides that this exception does
not apply to a foreign beneficial owner for which the sale of the
insurance contract (or interest therein) results in a requirement to
report any of the income from the sale as effectively connected with a
U.S. trade or business. To address those cases, the proposed
regulations provide that a seller required to report any of the income
from the sale of an insurance contract (or interest therein) as
effectively connected with the conduct of a trade or business in the
United States under section 864(b) must provide to the 6050Y(b) issuer
a Form W-8ECI, Certificate of Foreign Person's Claim that Income is
Effectively Connected with the Conduct of a Trade or Business in the
United States. The proposed regulations do not permit a 6050Y(b) issuer
to apply the exception when it receives a Form W-8ECI from a seller or
has reason to know that the seller is required to report any of the
sale proceeds as income effectively connected with a U.S. trade or
business. Similar provisions apply with respect to foreign beneficial
owners of reportable death benefits under Sec. 1.6050Y-4(e)(1) of the
proposed regulations. However, in response to comments received on
Notice 2018-41, the Treasury Department and the IRS are considering
whether payors required under section 6050Y(c) and Sec. 1.6050Y-
4(e)(1) of the proposed regulations to report payments of reportable
death benefits that are income effectively connected with a U.S. trade
or business may satisfy their reporting obligation under section
6050Y(c) by filing a Form 1042-S, Foreign Person's U.S. Source Income
Subject to Withholding, or if such payors may be relieved from the
obligation to report some of the information required to be reported
under section 6050Y(c).
Section 1.6050Y-4(e)(2) of the proposed regulations also includes a
reporting exception for death benefits paid under an insurance contract
(or interest therein) held by a buyer that obtained the contract or
interest in a reportable policy sale that was within an exception to
reporting described in Sec. 1.6050Y-3(f)(2) of the proposed
regulations. The exception to reporting described in Sec. 1.6050Y-
3(f)(2) of the proposed regulations applies in those cases in which a
6050Y(b) issuer received only a notice of transfer to a foreign person
and, because the requirements set forth in Sec. 1.6050Y-3(f)(2)(i)
through (iii) of the proposed regulations were met, was not required to
treat the transfer as reportable for purposes of section 6050Y(b).
6. Section 1.101-1: Exclusion From Gross Income of Proceeds of Life
Insurance Contracts Payable by Reason of Death
Generally, amounts received under a life insurance contract that
are paid by reason of the death of the insured are excluded from
federal income tax under section 101(a)(1). However, if a life
insurance contract is sold or otherwise transferred for valuable
consideration, the ``transfer for value rule'' set forth in section
101(a)(2) limits the excludable portion of the amount paid by reason of
the death of the insured. Section 101(a)(2) provides that the
excludable amount following a transfer for valuable consideration
generally may not exceed the sum of (1) The actual value of the
consideration paid by the transferee to acquire the life insurance
contract and (2) the premiums and other amounts subsequently paid by
the transferee. Section 101(a)(2) provides two exceptions to this
transfer for value rule. Specifically, the limitation set forth in
section 101(a)(2) does not apply if (1) The transferee's basis in the
contract is determined in whole or in part by reference to the
transferor's basis in the contract or (2) the transfer is to the
insured, to a partner of the insured, to a partnership in which the
insured is a partner, or to a corporation in which the insured is a
shareholder or officer.
Section 13522 of the Act added section 101(a)(3) to the Code.
Section 101(a)(3)(A) provides that these two exceptions shall not apply
in the case of a transfer of a life insurance contract, or any interest
therein, that is a reportable policy sale. Section 101(a)(3)(B) defines
the term ``reportable policy sale'' to mean the acquisition of an
interest in a life insurance contract, directly or indirectly, if the
acquirer has no substantial family, business, or financial relationship
with the insured apart from the acquirer's interest in such life
insurance contract. For purposes of the preceding sentence, the term
``indirectly'' applies to the acquisition of an interest in a
partnership, trust, or other entity that holds an interest in the life
insurance contract.
The proposed regulations update Sec. 1.101-1(a)(1) of the existing
regulations to reflect the repeal of section 101(b) (treatment of
employees' death benefits) in 1996, and the addition of section 7702
(definition of life insurance contract) in 1984, section 101(j)
(treatment of certain employer-owned life insurance contracts) in 2006,
and section 101(a)(3) (exception to valuable consideration rules for
reportable policy sales) in 2017. The proposed regulations remove the
second and third sentences of Sec. 1.101-1(a)(1) of the existing
regulations and add a sentence at the end of Sec. 1.101-1(a)(1) to
address the earlier changes in law. To address the changes in law made
by the Act, the proposed regulations under section 101 provide updated
rules for determining the amount of death benefits excluded from gross
income following a transfer for value or gratuitous transfer, including
a reportable policy sale, and provide definitions applicable under
section 101. The proposed regulations under section 6050Y adopt the
relevant definitions by cross-reference.
The proposed regulations provide that any transfer of an interest
in a life insurance contract for cash or other consideration reducible
to a money value is a transfer for valuable consideration. See Sec.
1.101-1(f)(5) of the proposed regulations; see also Sec. 25.2512-8
(``[a] consideration not reducible to a value in money or money's
worth, as love and affection, promise of marriage, etc., is to be
wholly disregarded''). An interest in a life insurance contract (also
referred to as a life insurance policy) is held by any person that has
taken title to or possession of the life insurance contract, in whole
or part, for state law purposes, including any person that has taken
title or possession as nominee for another person, or by any person
that has an enforceable right to receive all or a part of the proceeds
of the life insurance
[[Page 11016]]
contract or to any other economic benefits of the insurance policy as
described in Sec. 20.2042-1(c)(2). See Sec. 1.101-1(e)(1) of the
proposed regulations. The enforceable right to designate a contract
beneficiary is an interest in a life insurance contract. Id. Any person
named as the owner in a life insurance contract generally is the owner
(or an owner) of the contract and holds an interest in the contract.
Id.
The transfer of an interest in a life insurance contract includes
the transfer of any interest in the life insurance contract as well as
any transfer of the life insurance contract itself (meaning a transfer
of title to, possession of, or legal or beneficial ownership of the
life insurance contract). See Sec. 1.101-1(e)(2) of the proposed
regulations. For instance, the creation of an enforceable right to
receive all or a part of the proceeds of a life insurance contract
constitutes the transfer of an interest in the life insurance contract.
Id. However, the revocable designation of a beneficiary of the policy
proceeds does not constitute a transfer of an interest in a life
insurance contract to the beneficiary until the designation becomes
irrevocable other than by reason of the death of the insured. Id. For
purposes of this rule, a beneficiary designation is not revocable if
the person with the right to designate the beneficiary of the contract
has an enforceable contractual obligation to designate a particular
contract beneficiary. The pledging or assignment of a policy as
collateral security also is not a transfer of an interest in a life
insurance contract. Id. In response to comments received on Notice
2018-41 suggesting that the initial owner of a life insurance contract
should not be considered an ``acquirer'' for purposes of section
6050Y(a), Sec. 1.101-1(e)(2) of the proposed regulations clarifies
that the issuance of a life insurance contract to a policyholder, other
than the issuance of a policy in an exchange pursuant to section 1035,
is not a transfer of an interest in a life insurance contract.
Section 1.101-1(b)(1)(i) of the proposed regulations provides that,
in the case of a transfer of an interest in a life insurance contract
for valuable consideration, the amount of the proceeds attributable to
the interest that is excludable from gross income under section
101(a)(1) is limited under section 101(a)(2) to the sum of the actual
value of the consideration for the transfer paid by the transferee and
the premiums and other amounts subsequently paid by the transferee with
respect to that interest. Consistent with section 101(a)(3), this
general rule applies to all transfers of interests in life insurance
contracts for valuable consideration that are reportable policy sales.
Consistent with section 101(a)(2), this general rule also continues to
apply to transfers of interests in life insurance contracts for
valuable consideration that are not reportable policy sales, unless an
exception set forth in section 101(a)(2) applies. See Sec. 1.101-
1(b)(1)(i) and (ii) of the proposed regulations. Section 1.101-
1(b)(1)(ii)(A) of the proposed regulations applies to carryover basis
transfers that are not also subject to Sec. 1.101-1(b)(1)(ii)(B) of
the proposed regulations. Section 1.101-1(b)(1)(ii)(B) of the proposed
regulations applies to transfers to certain persons.
Under Sec. 1.101-1(b)(1)(ii)(A) of the proposed regulations, the
limitation described in section 101(a)(2) and Sec. 1.101-1(b)(1)(i) of
the proposed regulations does not apply to the transfer of an interest
in a life insurance contract for valuable consideration if (1) The
transfer is not a reportable policy sale, (2) the basis of the interest
transferred, for the purpose of determining gain or loss with respect
to the transferee, is determinable in whole or in part by reference to
the basis of that interest in the hands of the transferor, and (3)
Sec. 1.101-1(b)(1)(ii)(B) of the proposed regulations does not apply
to the transfer. The amount of the proceeds attributable to the
interest that is excludable from gross income under section 101(a)(1)
is, however, limited to the sum of (1) The amount that would have been
excludable by the transferor, and (2) the premiums and other amounts
subsequently paid by the transferee.
This limitation applies without regard to whether the interest
previously has been transferred or to the nature of any prior transfer
of the interest. For instance, it is irrelevant whether a prior
transfer was gratuitous or for value, whether section 101(a)(2)(A) or
(B) applied to a prior transfer, whether any prior transfer was a
reportable policy sale, or whether the prior transfer was of the same
interest or a larger interest in a life insurance contract that
included the same interest. If the full amount of the proceeds would
have been excludable by the transferor, as would generally be the case
if the original policyholder is the transferor, Sec. 1.101-
1(b)(1)(ii)(A) of the proposed regulations will, as a practical matter,
impose no limitation on the amount of the proceeds attributable to the
interest that is excludable from gross income under section 101(a)(1).
Under Sec. 1.101-1(b)(1)(ii)(B)(1) of the proposed regulations,
the limitation on the excludable amount of the proceeds described in
section 101(a)(2) and Sec. 1.101-1(b)(1)(i) of the proposed
regulations will not apply to an interest in a life insurance contract
that is transferred for valuable consideration if (1) The transfer is
not a reportable policy sale and the interest was not previously
transferred for valuable consideration in a reportable policy sale, and
(2) the transfer is to the insured, a partner of the insured, a
partnership in which the insured is a partner, or a corporation in
which the insured is a shareholder or officer (a (B)(1) person).
Under Sec. 1.101-1(b)(1)(ii)(B)(2) of the proposed regulations, if
a transfer of an interest in a life insurance contract to a (B)(1)
person follows a transfer for valuable consideration in a reportable
policy sale (whether in the immediately preceding transfer or an
earlier transfer), the amount of the proceeds attributable to that
interest that is excludable from gross income under section 101(a)(1)
is limited to the sum of (1) The higher of the amount that would have
been excludable by the transferor if the transfer to the (B)(1) person
had not occurred or the actual value of the consideration for the
transfer to the (B)(1) person paid by the (B)(1) person, and (2) the
premiums and other amounts subsequently paid by the transferee. Thus,
in determining the excludable amount of the proceeds attributable to an
interest in a life insurance contract that is transferred to a (B)(1)
person in a transfer that is not a reportable policy sale, the
limitation described in section 101(a)(2) and Sec. 1.101-1(b)(1)(i) of
the proposed regulations is inapplicable unless the interest previously
had been transferred in a reportable policy sale. Additionally, because
of the alternative in the formula for computing the limitation, a
(B)(1) person will not be subject to a less favorable limitation than
the limitation applicable to a transferee in a carryover basis transfer
eligible for the exception set forth in Sec. 1.101-1(b)(1)(ii)(A) of
the proposed regulations.
The proposed regulations provide a single rule applicable to all
gratuitous transfers of interests in life insurance contracts,
including reportable policy sales that are not for valuable
consideration: the amount of the proceeds attributable to the interest
that is excludable from gross income under section 101(a)(1) is limited
to the sum of (1) The amount of the proceeds attributable to the
gratuitously transferred interest that would have been excludable by
the transferor if the transfer had not occurred, and (2) the premiums
and other amounts subsequently paid by the transferee. See
[[Page 11017]]
Sec. 1.101-1(b)(2)(i) of the proposed regulations. Although Sec.
1.101-1(b)(2) of the existing regulations provides a special rule for
gratuitous transfers made by or to the insured, a partner of the
insured, a partnership in which the insured is a partner, or a
corporation in which the insured is a shareholder or officer, such a
rule is not required by section 101(a), and the proposed regulations do
not contain a special rule for these transfers because it could be
subject to abuse.
Section 1.101-1(b)(3) of the proposed regulations clarifies that,
for purposes of Sec. 1.101-1(b)(1) and (2) of the proposed
regulations, in determining the amounts, if any, of consideration paid
by the transferee for the transfer of an interest in a life insurance
contract and premiums and other amounts subsequently paid by the
transferee with respect to that interest, the amounts paid by the
transferee are reduced, but not below zero, by amounts received by the
transferee under the life insurance contract that are not received as
an annuity, to the extent excludable from gross income under section
72(e). This provision is necessary to prevent an exclusion from gross
income based on a double-counting of consideration paid.
Section 1.101-1(c) of the proposed regulations defines the term
``reportable policy sale,'' which was introduced in section 101(a)(3).
The proposed regulations provide that, as a general matter, any direct
or indirect acquisition of an interest in a life insurance contract is
a ``reportable policy sale'' if the acquirer has, at the time of the
acquisition, no substantial family, business, or financial relationship
with the insured apart from the acquirer's interest in that life
insurance contract. See Sec. 1.101-1(c)(1) of the proposed
regulations.
Under Sec. 1.101-1(e)(3)(i) of the proposed regulations, the
transfer of an interest in a life insurance contract results in the
direct acquisition of the interest by the transferee (acquirer). Under
Sec. 1.101-1(e)(3)(ii) of the proposed regulations, an indirect
acquisition of an interest in a life insurance contract occurs when a
person (acquirer) becomes a beneficial owner of a partnership, trust,
or other entity that holds (directly or indirectly) an interest in the
life insurance contract. For this purpose, the term ``other entity''
does not include a C corporation (as that term is defined in section
1361(a)(2)), unless more than 50 percent of the gross value of the
assets of the C corporation (as determined under Sec. 1.101-1(f)(4))
consists of life insurance contracts immediately before the indirect
acquisition. Under Sec. 1.101-1(f)(1) of the proposed regulations, a
``beneficial owner'' of a partnership, trust, or other entity is an
individual or C corporation with an ownership interest in that
partnership, trust, or other entity. The beneficial owner's interest
may be held directly or indirectly, through one or more other
partnerships, trusts, or other entities.
Accordingly, under Sec. 1.101-1(e)(3)(ii) of the proposed
regulations, persons that acquire shares in a C corporation that holds
an interest in a life insurance contract generally will not be
considered to have an indirect acquisition of an interest in such
contract. However, if the C corporation primarily owns life insurance
contracts (or interests therein), any person that acquires shares in
the C corporation will be considered to have an indirect acquisition of
an interest in any life insurance contract held by the C corporation.
Section 1.101-1(d) of the proposed regulations defines the terms
``substantial family relationship,'' ``substantial business
relationship,'' and ``substantial financial relationship.'' Under
section 1.101-1(d)(1) of the proposed regulations, a ``substantial
family relationship'' is the relationship between an individual and any
family member of that individual as defined in Sec. 1.101-1(f)(3) of
the proposed regulations. A substantial family relationship also exists
between an individual and his or her former spouse with regard to a
transfer of an interest in a life insurance contract to (or in trust
for the benefit of) that former spouse incident to divorce. See Sec.
1.101-1(d)(1) of the proposed regulations. Additionally, a substantial
family relationship exists between the insured and an entity if all of
the entity's beneficial owners have a substantial family relationship
with the insured. Id.
Section 1.101-1(d)(2) describes the two situations in which a
substantial business relationship exists between the acquirer and
insured: (1) The insured is a key person (as defined in section 264)
of, or materially participates (as defined in section 469 and the
corresponding regulations) in, an active trade or business as an owner,
employee, or contractor, and at least 80% of that trade or business is
owned (directly or indirectly, through one or more partnerships,
trusts, or other entities) by the acquirer or the beneficial owners of
the acquirer, and (2) the acquirer acquires an active trade or business
and acquires the interest in the life insurance contract either as part
of that acquisition or from a person owning significant property leased
to the acquired trade or business or life insurance policies held to
facilitate the succession of the ownership of the business, if certain
requirements are met. See Sec. 1.101-1(d)(2)(i) and (ii) of the
proposed regulations.
Comments received on Notice 2018-41 suggested that acquisitions of
life insurance contracts, or interests therein, in certain ordinary
course business transactions involving the acquisition of a trade or
business should not be considered reportable policy sales, including
ordinary course business transactions whereby one trade or business
acquires another trade or business that owns life insurance on the
lives of former employees or directors. The definition of substantial
business relationship in Sec. 1.101-1(d)(2) of the proposed
regulations, as well as certain other provisions in the proposed
regulations, are intended to exclude certain of these transactions from
the definition of reportable policy sales.
Section 1.101-1(d)(3) of the proposed regulations describes the
three situations in which a substantial financial relationship exists
between the insured and the acquirer: (1) The acquirer (directly or
indirectly, through one or more partnerships, trusts, or other entities
of which it is a beneficial owner) has, or the beneficial owners of the
acquirer have, a common investment (other than the interest in the life
insurance contract) with the insured and a buy-out of the insured's
interest in the common investment by the co-investor(s) after the
insured's death is reasonably foreseeable; (2) the acquirer maintains
the life insurance contract on the life of the insured to provide funds
to purchase assets or satisfy liabilities following the death of the
insured; or (3) the acquirer is an organization described in sections
170(c), 2055(a), and 2522(a) that previously received financial support
in a substantial amount or significant volunteer support from the
insured. See Sec. 1.101-1(d)(3)(i) through (iii) of the proposed
regulations.
The proposed regulations also specify that the fact that an
acquirer is a partner of the insured, a partnership in which the
insured is a partner, or a corporation in which the insured is a
shareholder or officer (all relationships that are covered by an
exception from the transfer for value rule) is not sufficient to
establish a substantial business or financial relationship, nor is such
status required to establish a substantial business or financial
relationship. See Sec. 1.101-1(d)(4)(ii) of the proposed regulations.
The proposed regulations also clarify that, for purposes of determining
whether the acquirer in an indirect acquisition of an interest in a
life insurance contract has a substantial
[[Page 11018]]
business or financial relationship with the insured, the acquirer will
be deemed to have a substantial business or financial relationship with
the insured if the direct holder of the interest in the life insurance
contract has a substantial business or financial relationship with the
insured immediately before and after the date the acquirer acquires its
interest. See Sec. 1.101-1(d)(4)(i) of the proposed regulations.
Accordingly, the acquirer in an indirect acquisition may establish a
substantial business or financial relationship with the insured based
on the acquirer's own relationship with the insured or the relationship
between the insured and the direct holder of the interest in the life
insurance contract.
The proposed regulations also provide several exceptions from the
definition of reportable policy sale. The proposed regulations provide
that the transfer of an interest in a life insurance contract between
certain related entities is not a reportable policy sale. Specifically,
a transfer between entities with the same beneficial owners is not a
reportable policy sale if the ownership interest of each beneficial
owner in each entity does not vary by more than a 20 percent ownership
interest. See Sec. 1.101-1(c)(2)(i) and (g)(10) of the proposed
regulations. Also, a transfer between corporations that are members of
an affiliated group (as defined in section 1504(a)) that files a
consolidated U.S. tax return for the taxable year in which the transfer
occurs is not a reportable policy sale. See Sec. 1.101-1(c)(2)(ii) of
the proposed regulations.
Finally, in response to comments received on Notice 2018-41,
certain indirect acquisitions of life insurance contracts, or interests
in life insurance contracts, are excepted from the definition of a
reportable policy sale. The limited definition of ``indirect
acquisition'' under Sec. 1.101-1(e)(3)(ii) of the proposed regulations
means that shareholders acquiring an interest in a C corporation that
holds an interest in one or more life insurance contracts will not be
considered to have an indirect acquisition or reportable policy sale
unless the C corporation primarily owns life insurance contracts (or
interests therein). The proposed regulations also provide an exception
from the definition of a reportable policy sale for an indirect
acquisition of an interest in a life insurance contract if the direct
holder of the interest acquired the interest in a reportable policy
sale and reported the acquisition in compliance with section 6050Y(a)
and Sec. 1.6050Y-2 of the proposed regulations. See Sec. 1.101-
1(c)(2)(iii)(A) of the proposed regulations. Also, the indirect
acquisition of an interest in a life insurance contract is not a
reportable policy sale if (1) Immediately before the acquisition, no
more than 50 percent of the gross value of the assets of the entity
that directly holds the interest in the life insurance contract
consists of life insurance contracts, and (2) the acquirer and his or
her family members own five percent or less of the ownership interests
in the entity that directly holds the interest in the life insurance
contract. See Sec. 1.101-1(c)(2)(iii)(B) of the proposed regulations.
Section 1.101-1(f)(4) of the proposed regulations provides rules
regarding the determination of the gross value of assets for this
purpose.
Applicability Dates
The rules in Sec. 1.101-1(b) through (g) of the proposed
regulations are proposed to apply, for purposes of section 6050Y, to
reportable policy sales made after December 31, 2017, and to reportable
death benefits paid after December 31, 2017. For any other purpose,
Sec. 1.101-1(b) through (g) of the proposed regulations apply to
transfers of life insurance contracts, or interests therein, made after
the date the Treasury decision adopting these regulations as final
regulations is published in the Federal Register.
The rules in Sec. 1.6050Y-1 of the proposed regulations are
proposed to apply to reportable policy sales made and reportable death
benefits paid after December 31, 2017. The rules in Sec. Sec. 1.6050Y-
2 and 1.6050Y-3 are proposed to apply to reportable policy sales made
after December 31, 2017. The rules in Sec. 1.6050Y-4 are proposed to
apply to reportable death benefits paid after December 31, 2017. See
Sec. 1.6050Y-1(b) of the proposed regulations.
For reportable policy sales and payments of reportable death
benefits occurring after December 31, 2017, and before the date final
regulations are published in the Federal Register, Sec. 1.6050Y-1(b)
of the proposed regulations would provide transition relief as follows:
1. With respect to reportable policy sales occurring after December
31, 2017, and before the date final regulations are published in the
Federal Register, statements required to be furnished to issuers under
section 6050Y(a)(2) must be furnished by the later of the applicable
deadline set forth in final regulations or 60 days after the date final
regulations are published in the Federal Register;
2. With respect to reportable policy sales occurring after December
31, 2017, and before the date final regulations are published in the
Federal Register, returns required to be filed under section
6050Y(a)(1) and (b)(1) and statements required to be furnished to
payment recipients and sellers under section 6050Y(a)(2) and (b)(2)
must be filed or furnished by the later of the applicable deadline set
forth in final regulations or 90 days after the date final regulations
are published in the Federal Register; and
3. With respect to payments of reportable death benefits paid after
December 31, 2017, and before the date final regulations are published
in the Federal Register, returns required to be filed under section
6050Y(c)(1) and statements required to be furnished to payment
recipients under section 6050Y(c)(2) must be filed or furnished by the
later of the applicable deadline set forth in final regulations or 90
days after the date final regulations are published in the Federal
Register.
Special Analyses
The proposed regulations are not subject to review under section
6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement
(April 11, 2018) between the Treasury Department and the Office of
Management and Budget regarding review of tax regulations.
When the IRS issues a proposed rulemaking imposing a requirement on
small entities, the Regulatory Flexibility Act (RFA) requires the
agency to ``prepare and make available for public comment an initial
regulatory flexibility analysis,'' which will ``describe the impact of
the proposed rule on small entities.'' 5 U.S.C. 603(a). Section 605(b)
of the RFA allows an agency to certify a rule, in lieu of preparing an
analysis, if the proposed rulemaking is not expected to have a
significant economic impact on a substantial number of small entities.
Pursuant to the RFA, it is hereby certified that the proposed
regulations will not have a significant economic impact on a
substantial number of small entities. Section 13520 of the Act added
section 6050Y to chapter 61 (Information and Returns) of the Code.
Section 6050Y imposes information reporting obligations related to
certain life insurance contract transactions, including reportable
policy sales and payments of reportable death benefits. Section 6050Y
provides that each of the returns required by section 6050Y is to be
made ``at such time and in such manner as the Secretary shall
prescribe.'' The proposed regulations under section 6050Y would
implement section 6050Y by specifying the manner in which and time at
which the information reporting obligations must
[[Page 11019]]
be satisfied. Accordingly, because the regulations are limited in scope
to time and manner of information reporting and definitional
information, the economic impact of the proposal is expected to be
minimal. In addition, the IRS and Treasury expect that the reporting
burden will fall primarily on financial and insurance firms with annual
receipts greater than $38.5 million (see 13 CFR 121.201, sector 52
(finance and insurance)). Therefore, because the Commissioner of the
IRS hereby certifies that the proposed regulations will not have a
significant economic impact on a substantial number of small entities,
a regulatory flexibility analysis is not required. The Treasury
Department and the IRS request comments on the accuracy of this
statement. Pursuant to section 7805(f) of the Code, this notice of
proposed rulemaking will be submitted to the Chief Counsel for Advocacy
of the Small Business Administration for comment on its impact on small
entities.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the IRS as prescribed in this preamble under the ADDRESSES heading.
The Treasury Department and the IRS request comments on all aspects of
the proposed rules. The Treasury Department and the IRS specifically
request comments on the following:
1. Whether the proposed regulations should provide rules regarding
the electronic furnishing of statements that differ in any way from the
rules regarding the electronic furnishing of statements that are set
forth in Sec. 31.6051-1(j).
2. Information about the types and timing of payments made by
acquirers in reportable policy sales, including the types of ancillary
costs and expenses paid in reportable policy sales, the recipients of
those payments, and existing reporting requirements applicable to those
payments.
3. Whether, for purposes of reporting under section 6050Y(c), only
issuers should be considered payors of reportable death benefits or
whether payors should be more broadly defined to include any holder of
an interest in a life insurance contract that receives reportable death
benefits attributable to that interest and is contractually obligated
to pay them to the beneficial owner of the interest.
4. Whether a substantial business relationship or substantial
financial relationship should be considered to exist between the
acquirer and insured for purposes of section 101(a)(3) in any situation
not included in the definition of ``substantial business relationship''
in Sec. 1.101-1(d)(2) of the proposed regulations or the definition of
``substantial financial relationship'' in Sec. 1.101-1(d)(3) of the
proposed regulations.
5. Whether the proposed regulations should include additional
provisions regarding the treatment of section 1035 exchanges of life
insurance contracts.
6. Whether the exceptions to reporting by 6050Y(b) issuers and
payors under Sec. Sec. 1.6050Y-3(f)(1) and 1.6050Y-4(e)(1) of the
proposed regulations (covering sellers and reportable death benefit
payment recipients documented as foreign beneficial owners) are
appropriate, including for cases in which a foreign partnership or a
foreign trust is the seller or reportable death benefit payment
recipient, and also whether the proposed reporting requirements are
duplicative or could be combined with other reporting requirements.
All comments that are submitted by the public will be available for
public inspection and copying at www.regulations.gov or upon request.
A public hearing has been scheduled for June 5, 2019, at 10 a.m.,
in the IRS Auditorium, Internal Revenue Service, 1111 Constitution
Avenue NW, Washington, DC. Due to building security procedures,
visitors must enter at the Constitution Avenue entrance. In addition,
all visitors must present photo identification to enter the building.
Because of access restrictions, visitors will not be admitted beyond
the immediate entrance area more than 15 minutes before the hearing
starts. For more information about having your name placed on the
building access list to attend the hearing, see the FOR FURTHER
INFORMATION CONTACT section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit written or
electronic comments and an outline of the topics to be discussed and
the time to be devoted to each topic by May 9, 2019. Such persons
should submit a signed paper original and eight (8) copies or an
electronic copy. A period of 10 minutes will be allotted to each person
for making comments. An agenda showing the scheduling of the speakers
will be prepared after the deadline for receiving outlines has passed.
Copies of the agenda will be available free of charge at the hearing.
Drafting Information
The principal author of these regulations is Kathryn M. Sneade,
Office of Associate Chief Counsel (Financial Institutions and
Products), IRS. However, other personnel from the Treasury Department
and the IRS participated in their development.
Availability of IRS Documents
The IRS notice cited in this preamble is published in the Internal
Revenue Bulletin (or Cumulative Bulletin) and is available from the
Superintendent of Documents, U.S. Government Publishing Office,
Washington, DC 20402, or by visiting the IRS website at www.irs.gov.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.101-1 is amended by:
0
1. Removing the second and third sentences in paragraph (a)(1) and
adding a sentence at the end of the paragraph.
0
2. Revising paragraphs (b)(1) through (3).
0
3. Removing paragraphs (b)(4) and (5).
0
4. Adding paragraphs (c) through (g).
The revisions and additions read as follows:
Sec. 1.101-1 Exclusion from gross income of proceeds of life
insurance contracts payable by reason of death.
(a)(1) * * * If the life insurance contract is an employer-owned
life insurance contract within the definition of section 101(j)(3), the
amount to be excluded from gross income may be affected by the
provisions of section 101(j).
* * * * *
(b) * * * (1) Transfer of an interest in a life insurance contract
for valuable consideration--(i) In general. In the case of a transfer
of an interest in a life insurance contract for valuable consideration,
including a reportable policy sale for valuable consideration, the
amount of the proceeds attributable to the interest that is excludable
from gross income under section 101(a)(1) is limited under section
101(a)(2) to the
[[Page 11020]]
sum of the actual value of the consideration for the transfer paid by
the transferee and the premiums and other amounts subsequently paid by
the transferee with respect to the interest. For exceptions to this
general rule for certain transfers for valuable consideration that are
not reportable policy sales, see paragraph (b)(1)(ii) of this section.
The application of section 101(d), (f) or (j), which is not addressed
in paragraph (b) of this section, may further limit the amount of the
proceeds excludable from gross income.
(ii) Exceptions--(A) Exception for carryover basis transfers. The
limitation described in paragraph (b)(1)(i) of this section does not
apply to the transfer of an interest in a life insurance contract for
valuable consideration if each of the following requirements are
satisfied. First, the transfer is not a reportable policy sale. Second,
the basis of the interest, for the purpose of determining gain or loss
with respect to the transferee, is determinable in whole or in part by
reference to the basis of the interest in the hands of the transferor
(see section 101(a)(2)(A)). Third, paragraph (b)(1)(ii)(B) of this
section does not apply. In the case of a transfer described in this
paragraph (b)(1)(ii)(A), the amount of the proceeds attributable to the
interest that is excludable from gross income under section 101(a)(1)
is limited to the sum of the amount that would have been excludable by
the transferor if the transfer had not occurred and the premiums and
other amounts subsequently paid by the transferee. The preceding
sentence applies without regard to whether the interest previously has
been transferred and the nature of any prior transfer of the interest.
(B) Exception for transfers to certain persons--(1) In general. The
limitation described in paragraph (b)(1)(i) of this section does not
apply to the transfer of an interest in a life insurance contract for
valuable consideration if both of the following requirements are
satisfied. First, the transfer is not a reportable policy sale and the
interest was not previously transferred for valuable consideration in a
reportable policy sale. Second, the interest is transferred to the
insured, a partner of the insured, a partnership in which the insured
is a partner, or a corporation in which the insured is a shareholder or
officer (see section 101(a)(2)(B)).
(2) Transfers to certain persons subsequent to a reportable policy
sale. If a transfer of an interest in a life insurance contract would
be described in paragraph (b)(1)(ii)(B)(1) of this section, but for the
fact that the interest was previously transferred for valuable
consideration in a reportable policy sale (whether in the immediately
preceding transfer or an earlier transfer), then the amount of the
proceeds attributable to the interest that is excludable from gross
income under section 101(a)(1) is limited to the sum of--
(i) The higher of the amount that would have been excludable by the
transferor if the transfer had not occurred or the actual value of the
consideration for the transfer paid by the transferee; and
(ii) The premiums and other amounts subsequently paid by the
transferee.
(2) Other transfers--(i) Gratuitous transfer of an interest in a
life insurance contract. To the extent that a transfer of an interest
in a life insurance contract is gratuitous, including a reportable
policy sale that is not for valuable consideration, the amount of the
proceeds attributable to the interest that is excludable from gross
income under section 101(a)(1) is limited to the sum of the amount of
the proceeds attributable to the gratuitously transferred interest that
would have been excludable by the transferor if the transfer had not
occurred and the premiums and other amounts subsequently paid by the
transferee.
(ii) Partial transfers. When only part of an interest in a life
insurance contract is transferred, the transferor's exclusion is
ratably apportioned among the several parts. If multiple parts of an
interest are transferred, the transfer of each part is treated as a
separate transaction, with each transaction subject to the rule under
paragraph (b) of this section that is appropriate to the type of
transfer involved.
(iii) Bargain sales. When the transfer of an interest in a life
insurance contract is in part a sale and in part a gratuitous transfer,
the transfer of each part is treated as a separate transaction for
purposes of determining the amount of the proceeds attributable to the
interest that is excludable from gross income under section 101(a)(1).
Each separate transaction is subject to the rule under paragraph (b) of
this section that is appropriate to the type of transfer involved.
(3) Determination of amounts paid by the transferee. For purposes
of paragraphs (b)(1) and (2) of this section, in determining the
amounts, if any, of consideration paid by the transferee for the
transfer of an interest in a life insurance contract and premiums and
other amounts subsequently paid by the transferee with respect to that
interest, the amounts paid by the transferee are reduced, but not below
zero, by amounts received by the transferee under the life insurance
contract that are not received as an annuity, to the extent excludable
from gross income under section 72(e).
(c) Reportable policy sale--(1) In general. Except as provided in
paragraph (c)(2) of this section, a reportable policy sale for purposes
of this section and section 6050Y is any direct or indirect acquisition
of an interest in a life insurance contract if the acquirer has, at the
time of the acquisition, no substantial family, business, or financial
relationship with the insured apart from the acquirer's interest in the
life insurance contract.
(2) Exceptions. None of the following transactions is a reportable
policy sale:
(i) A transfer of an interest in a life insurance contract between
entities with the same beneficial owners, if the ownership interest of
each beneficial owner in the transferor entity does not vary by more
than a 20 percent ownership interest from that beneficial owner's
ownership interest in the transferee entity. In a series of transfers,
the prior sentence is applied by comparing the beneficial owners'
ownership interest in the first transferor entity and the last
transferee entity. For purposes of this paragraph (c)(2)(i), each
beneficial owner of a trust is deemed to have an ownership interest
determined by the broadest possible exercise of a trustee's discretion
in that beneficial owner's favor. Example 10 in paragraph (g)(10) of
this section provides an illustration of the application of this
paragraph (c)(2)(i).
(ii) A transfer between corporations that are members of an
affiliated group (as defined in section 1504(a)) that files a
consolidated U.S. income tax return for the taxable year in which the
transfer occurs.
(iii) The indirect acquisition of an interest in a life insurance
contract by a person if--
(A) The partnership, trust, or other entity that directly holds the
interest in the life insurance contract acquired that interest in a
reportable policy sale reported in compliance with section 6050Y(a) and
Sec. 1.6050Y-2; or
(B) Immediately before the acquisition, no more than 50 percent of
the gross value of the assets (as determined under paragraph (f)(4) of
this section) of the partnership, trust, or other entity that directly
holds the interest in the life insurance contract consists of life
insurance contracts, and with respect to that partnership, trust, or
other entity, the person indirectly acquiring the interest in the
contract (acquirer) and his or her family members own, in the
aggregate--
(1) With respect to an S corporation, stock possessing 5 percent or
less of the
[[Page 11021]]
total combined voting power of all classes of stock entitled to vote
and 5 percent or less of the total value of shares of all classes of
stock of the S corporation;
(2) With respect to a trust or decedent's estate, 5 percent or less
of the corpus and 5 percent or less of the annual income (taking into
account, for the purpose of determining any person's ownership
interest, the maximum amount of income and corpus that could be
distributed to or held for the benefit of that person); or
(3) With respect to a partnership or other entity that is not a
corporation or a trust, 5 percent or less of the capital interest and 5
percent or less of the profits interest.
(d) Substantial relationship--(1) Substantial family relationship.
For purposes of this section, a substantial family relationship means
the relationship between an individual and any family member of that
individual as defined in paragraph (f)(3) of this section. In addition,
a substantial family relationship exists between an individual and his
or her former spouse with regard to the transfer of an interest in a
life insurance contract to (or in trust for the benefit of) that former
spouse incident to divorce. A substantial family relationship also
exists between the insured and a partnership, trust, or other entity if
all of the beneficial owners of that partnership, trust, or other
entity have a substantial family relationship with the insured. For
example, a substantial family relationship exists between the insured
and an entity that acquires an interest in a life insurance contract on
the insured's life if the insured is the sole beneficial owner of the
entity or each beneficial owner of the entity is either the insured or
a family member of the insured.
(2) Substantial business relationship. For purposes of this
section, a substantial business relationship between the insured and
the acquirer exists in each of the following situations:
(i) The insured is a key person (as defined in section 264) of, or
materially participates (within the meaning of section 469) in, an
active trade or business as an owner, employee, or contractor, and at
least 80% of that trade or business is owned (directly or indirectly,
through one or more partnerships, trusts, or other entities) by the
acquirer or the beneficial owners of the acquirer.
(ii) The acquirer acquires an active trade or business and acquires
the interest in the life insurance contract either as part of that
acquisition or from a person owning significant property leased to the
acquired trade or business or life insurance policies held to
facilitate the succession of the ownership of the business if--
(A) The insured--
(1) Is an employee within the meaning of section 101(j)(5)(A) of
the acquired trade or business immediately preceding the acquisition;
or
(2) Was a director, highly compensated employee, or highly
compensated individual within the meaning of section 101(j)(2)(A)(ii)
of the acquired trade or business, and the acquirer, immediately after
the acquisition, has ongoing financial obligations to the insured with
respect to the insured's employment by the trade or business (for
example, the life insurance contract is maintained by the acquirer to
fund current or future retirement, pension, or survivorship obligations
based on the insured's relationship with the entity or to fund a buy-
out of the insured's interest in the acquired trade or business); and
(B) The acquirer either carries on the acquired trade or business
or uses a significant portion of the acquired business assets in an
active trade or business that does not include investing in interests
in life insurance contracts.
(3) Substantial financial relationship. For purposes of this
section, a substantial financial relationship between the insured and
the acquirer exists in each of the following situations:
(i) The acquirer (directly or indirectly, through one or more
partnerships, trusts, or other entities of which it is a beneficial
owner) has, or the beneficial owners of the acquirer have, a common
investment (other than the interest in the life insurance contract)
with the insured and a buy-out of the insured's interest in the common
investment by the co-investor(s) after the insured's death is
reasonably foreseeable.
(ii) The acquirer maintains the life insurance contract on the life
of the insured to provide funds to purchase assets or satisfy
liabilities following the death of the insured.
(iii) The acquirer is an organization described in sections 170(c),
2055(a), and 2522(a) that previously received financial support in a
substantial amount or significant volunteer support from the insured.
(4) Special rules. Paragraphs (d)(4)(i) and (ii) of this section
apply for purposes of determining whether a substantial business
relationship exists under paragraph (d)(2) of this section and for
purposes of determining whether a substantial financial relationship
exists under paragraph (d)(3) of this section.
(i) Indirect acquisitions. The acquirer in an indirect acquisition
of an interest in a life insurance contract is deemed to have a
substantial business or financial relationship with the insured if the
direct holder of the interest in the life insurance contract has a
substantial business or financial relationship with the insured
immediately before and after the date the acquirer acquires its
interest.
(ii) Acquisitions by certain persons. The sole fact that an
acquirer is a partner of the insured, a partnership in which the
insured is a partner, or a corporation in which the insured is a
shareholder or officer, is not sufficient to establish a substantial
business or financial relationship with the insured. In addition, an
acquirer need not be a partner of the insured, a partnership in which
the insured is a partner, or a corporation in which the insured is a
shareholder or officer to have a substantial business or financial
relationship with the insured.
(e) Interest in a life insurance contract--(1) Definition. For
purposes of this section and section 6050Y, the term interest in a life
insurance contract means the interest held by any person that has taken
title to or possession of the life insurance contract (also referred to
as a life insurance policy), in whole or part, for state law purposes,
including any person that has taken title or possession as nominee for
another person, and the interest held by any person that has an
enforceable right to receive all or a part of the proceeds of a life
insurance contract or to any other economic benefits of the policy as
described in Sec. 20.2042-1(c)(2) of this chapter, such as the
enforceable right to designate a contract beneficiary. Any person named
as the owner in the life insurance contract generally is the owner (or
an owner) of the contract and holds an interest in the contract.
(2) Transfer of an interest in a life insurance contract. For
purposes of this section and section 6050Y, the term transfer of an
interest in a life insurance contract means the transfer of any
interest in the life insurance contract, including any transfer of
title to, possession of, or legal or beneficial ownership of the life
insurance contract itself. The creation of an enforceable right to
receive all or a part of the proceeds of a life insurance contract
constitutes the transfer of an interest in the life insurance contract.
The following events are not a transfer of an interest in a life
insurance contract: The revocable designation of a beneficiary of the
policy proceeds (until the
[[Page 11022]]
designation becomes irrevocable other than by reason of the death of
the insured); the pledging or assignment of a policy as collateral
security; and the issuance of a life insurance contract to a
policyholder, other than the issuance of a policy in an exchange
pursuant to section 1035.
(3) Acquisition of an interest in a life insurance contract. For
purposes of this section and section 6050Y, the acquisition of an
interest in a life insurance contract may be direct or indirect.
(i) Direct acquisition of an interest in a life insurance contract.
For purposes of this section and section 6050Y, the transfer of an
interest in a life insurance contract results in the direct acquisition
of the interest by the transferee (acquirer).
(ii) Indirect acquisition of an interest in a life insurance
contract. For purposes of this section and section 6050Y, an indirect
acquisition of an interest in a life insurance contract occurs when a
person (acquirer) becomes a beneficial owner of a partnership, trust,
or other entity that holds (whether directly or indirectly) the
interest in the life insurance contract. For purposes of this paragraph
(e)(3)(ii), the term other entity does not include a C corporation,
unless more than 50 percent of the gross value of the assets of the C
corporation consists of life insurance contracts (as determined under
paragraph (f)(4) of this section) immediately before the indirect
acquisition.
(f) Definitions. The following definitions apply for purposes of
this section:
(1) Beneficial owner. A beneficial owner of a partnership, trust or
other entity is an individual or C corporation with an ownership
interest in that entity. The interest may be held directly or
indirectly, through one or more other partnerships, trusts, or other
entities. For instance, an individual that directly owns an interest in
a partnership (P1), which directly owns an interest in another
partnership (P2), is an indirect beneficial owner of P2 and any assets
or other entities owned by P2 directly or indirectly. For purposes of
this paragraph (f)(1), the beneficial owners of a trust include those
who may receive current distributions of trust income or corpus and
those who could receive distributions if the trust were to terminate
currently.
(2) C corporation. The term C corporation has the meaning given to
it in section 1361(a)(2).
(3) Family member. With respect to any individual, the term family
member refers to any person described in paragraphs (f)(3)(i) through
(vii) of this section. For purposes of this paragraph (f)(3), full
effect is given to a legal adoption, and a step-child is deemed to be a
descendant. The family members of an individual include:
(i) The individual;
(ii) The individual's spouse or a person with whom the individual
is in a registered domestic partnership, civil union, or other similar
relationship established under state law;
(iii) Any parent, grandparent, or great-grandparent of the
individual or of the person described in paragraph (f)(3)(ii) of this
section and any spouse of such parent, grandparent, or great-
grandparent, or person with whom the parent, grandparent, or great-
grandparent is in a registered domestic partnership, civil union, or
other similar relationship established under state law;
(iv) Any lineal descendant of the individual or of any person
described in paragraph (f)(3)(ii) or (iii) of this section;
(v) Any spouse of a lineal descendant described in paragraph
(f)(3)(iv) of this section and any person with whom such a lineal
descendant is in a registered domestic partnership, civil union, or
other similar relationship established under state law;
(vi) Any lineal descendant of a person described in paragraph
(f)(3)(v) of this section; and
(vii) Any trust established and maintained for the primary benefit
of the individual or one or more persons described in paragraph
(f)(3)(i) through (vi) of this section.
(4) Gross value of assets--(i) Determination of gross value of
assets. Except as otherwise provided in paragraph (f)(4)(ii) and (iii)
of this section, for purposes of paragraphs (c)(2)(iii)(B) and
(e)(3)(ii) of this section, the term gross value of assets means, with
respect to any entity, the fair market value of the entity's assets.
(ii) Determination of gross value of assets of publicly traded
entity. For purposes of determining the gross value of assets of an
entity that is publicly traded, if the entity's annual Form 10-K filed
with the United States Securities and Exchange Commission (or
equivalent annual filing if the entity is publicly traded in a non-U.S.
jurisdiction) for the period immediately preceding a person's
acquisition of an ownership interest in the entity does not contain
information demonstrating that more than 50 percent of the gross value
of the entity's assets consist of life insurance contracts, that person
may assume that no more than 50 percent of the gross value of the
entity's assets consist of life insurance contracts, unless that person
has actual knowledge or reason to know that more than 50 percent of the
gross value of the entity's assets consist of life insurance contracts.
(iii) Safe harbor definition of gross value of assets. An entity
may choose to determine the gross value of all the entity's assets for
purposes of this section using the following alternative definition of
gross value of assets:
(A) In the case of assets that are life insurance policies or
annuity or endowment contracts that have cash values, the cash
surrender value as defined in section 7702(f)(2)(A); and
(B) In the case of assets not described in paragraph (f)(4)(iii)(A)
of this section, the adjusted bases (within the meaning of section
1016) of such assets.
(5) Transfer for valuable consideration. A transfer for valuable
consideration means any transfer of an interest in a life insurance
contract for cash or other consideration reducible to a money value.
(g) Examples. The application of this section is illustrated by the
following examples, all of which assume that the transferee did not
receive any amounts under the life insurance contract other than the
amounts described in the examples:
(1) Example 1. A is the initial policyholder of a $100,000
insurance policy on A's life. A sells the policy to B, A's child,
for $6,000, its fair market value. B is not a partner in a
partnership in which A is a partner. B receives the proceeds of
$100,000 upon the death of A. Because the transfer to B was for
valuable consideration, and none of the exceptions in paragraph
(b)(1)(ii) of this section applies, the amount of the proceeds B may
exclude from B's gross income under this section is limited under
paragraph (b)(1)(i) of this section to $6,000 plus any premiums and
other amounts paid by B subsequent to the transfer.
(2) Example 2. The facts are the same as in Example 1 in
paragraph (g)(1) of this section except that, before A's death, B
gratuitously transfers the policy back to A. A's estate receives the
proceeds of $100,000 on A's death. Because the transfer from B to A
is a gratuitous transfer, the amount of the proceeds A's estate may
exclude from gross income under this section is limited under
paragraph (b)(2)(i) of this section to the sum of the amount B could
have excluded had the transfer back to A not occurred ($6,000 plus
any premiums and other amounts paid by B subsequent to the transfer
to B, as described in Example 1 in paragraph (g)(1) of this section)
plus any premiums and other amounts paid by A subsequent to the
transfer to A.
(3) Example 3. The facts are the same as in Example 1 in
paragraph (g)(1) of this section except that, before A's death, B
sells the policy back to A for its fair market value. A's estate
receives the proceeds of $100,000 on A's death. The transfer from A
to B is not a reportable policy sale because the acquirer B has a
substantial family relationship with
[[Page 11023]]
the insured A. The transfer from B to A is also not a reportable
policy sale because the acquirer A has a substantial family
relationship with the insured A. Accordingly, paragraph
(b)(1)(ii)(B)(1) of this section applies to the transfer to A. The
amount of the proceeds A's estate may exclude from gross income is
not limited by paragraph (b) of this section.
(4) Example 4. A is the initial policyholder of a $100,000
insurance policy on A's life. A transfers the policy for $6,000, its
fair market value, to an individual, C, who does not have a
substantial family, business, or financial relationship with A. The
transfer from A to C is a reportable policy sale. C receives the
proceeds of $100,000 on A's death. The amount of the proceeds C may
exclude from C's gross income under this section is limited under
paragraph (b)(1)(i) of this section to $6,000 plus any premiums and
other amounts paid by C subsequent to the transfer.
(5) Example 5. The facts are the same as in Example 4 in
paragraph (g)(4) of this section, except that before A's death, C
transfers the policy back to A for $8,000, its fair market value.
A's estate receives the proceeds of $100,000 on A's death. The
transfer from C to A is not a reportable policy sale because the
acquirer A has a substantial family relationship with the insured A.
Because that transfer follows a reportable policy sale (the transfer
from A to C), the amount of the proceeds that A's estate may exclude
from gross income under this section is limited by paragraph
(b)(1)(ii)(B)(2) of this section to the sum of--
(i) The higher of the amount C could have excluded had the
transfer back to A not occurred ($6,000 plus any premiums and other
amounts paid by C subsequent to the transfer to C, as described in
Example 4 in paragraph (g)(4) of this section) or the actual value
of the consideration for that transfer paid by A ($8,000); and
(ii) Any premiums and other amounts paid by A subsequent to the
transfer to A.
(6) Example 6. The facts are the same as in Example 4 in
paragraph (g)(4) of this section, except that before A's death, C
gratuitously transfers the policy to A. A's estate receives the
proceeds of $100,000 on A's death. Because the transfer from C to A
was gratuitous, the amount of the proceeds A's estate may exclude
from gross income is limited under paragraph (b)(2)(i) of this
section to the sum of the amount C could have excluded had the
transfer back to A not occurred ($6,000 plus any premiums and other
amounts paid by C subsequent to the transfer to C, as described in
Example 4 in paragraph (g)(4) of this section), plus any premiums
and other amounts paid by A subsequent to the transfer back to A.
(7) Example 7. A is the initial policyholder of a $100,000
insurance policy on A's life. A contributes the policy to
Corporation X in exchange for stock. Corporation X's basis in the
policy is determinable in whole or in part by reference to A's basis
in the policy. Corporation X conducts an active trade or business
that it wholly owns, and A materially participates in that active
trade or business as an employee of Corporation X. Corporation X
receives the proceeds of $100,000 on A's death. A's contribution of
the policy to Corporation X is not a reportable policy sale because
Corporation X has a substantial business relationship with A under
paragraph (d)(2)(i) of this section. Accordingly, under paragraph
(b)(1)(ii)(B)(1) of this section, Corporation X may exclude the full
amount of the proceeds from gross income because Corporation X's
exclusion is not limited by paragraph (b) of this section.
(8) Example 8. The facts are the same as in Example 7 in
paragraph (g)(7) of this section, except that Corporation X
transfers its active trade or business and the policy on A's life to
Corporation Y in a tax-free reorganization at a time when A is still
employed by Corporation X, but is no longer a shareholder of
Corporation X. Corporation Y's basis in the policy is determinable
in whole or in part by reference to Corporation X's basis in the
property, and Corporation Y carries on the trade or business
acquired from Corporation X. Corporation Y receives the proceeds of
$100,000 on A's death. The transfer from Corporation X to
Corporation Y is not a reportable policy sale because Corporation Y
has a substantial business relationship with A under paragraph
(d)(2)(ii) of this section. The amount of the proceeds that
Corporation Y may exclude from gross income is limited under
paragraph (b)(1)(ii)(A) of this section to the sum of the amount
that would have been excludable by Corporation X had the transfer to
Corporation Y not occurred (the full amount of the proceeds, as
described in Example 7 in paragraph (g)(7) of this section), plus
any premiums and other amounts paid by Corporation Y subsequent to
the transfer. Accordingly, Corporation Y may exclude the full amount
of the proceeds from gross income.
(9) Example 9. A is the initial policyholder of a $100,000
insurance policy on A's life. A contributes the policy to a C
corporation, Corporation W, in exchange for stock. Before and after
the acquisition, A and A's family members own less than 5% of the
total combined voting power of all classes of Corporation W stock
entitled to vote and less than 5% of the total value of all classes
of Corporation W stock. Corporation W's basis in the policy is
determinable in whole or in part by reference to A's basis in the
property. However, no substantial family, business, or financial
relationship exists between A and Corporation W. Corporation W
receives the proceeds of $100,000 on A's death. A's contribution of
the policy to Corporation W is a reportable policy sale. Under
paragraph (b)(1)(i) of this section, the amount of the proceeds
Corporation W may exclude from gross income is limited to the actual
value of the stock exchanged for the policy, plus any premiums and
other amounts paid by Corporation W subsequent to the transfer.
(10) Example 10. Partnership X and Partnership Y are owned by
individuals A, B, and C. A holds 40% of the capital and profits
interest of Partnership X and 20% of the capital and profits
interest of Partnership Y. B holds 35% of the capital and profits
interest of Partnership X and 40% of the capital and profits
interest of Partnership Y. C holds 25% of the capital and profits
interest of Partnership X and 40% of the capital and profits
interest of Partnership Y. Partnership X is the initial policyholder
of a $100,000 insurance policy on the life of A. Partnership Y
purchases the policy from Partnership X. Under paragraph (c)(2)(i)
of this section, this transfer is not a reportable policy sale
because the ownership interest of each beneficial owner in
Partnership X does not vary from that owner's interest in
Partnership Y by more than a 20% ownership interest. A's ownership
varies by a 20% interest, B's ownership varies by a 5% interest, and
C's ownership varies by a 15% interest.
(11) Example 11. Partnership X conducts an active trade or
business and is the initial policyholder of a $100,000 insurance
policy on the life of its full-time employee, A. A materially
participates in Partnership X's active trade or business in A's
capacity as an employee. Individual B acquires a 10% profits
interest in Partnership X in exchange for a cash payment of
$1,000,000. Under paragraphs (d)(1) through (3) of this section, B
does not have a substantial family, business, or financial
relationship with A. Under paragraph (d)(4)(i) of this section, B is
deemed to have a substantial business relationship with A because,
under paragraph (d)(2)(i) of this section, Partnership X (the direct
policyholder) has a substantial business relationship with A.
Accordingly, although the acquisition of the 10% partnership
interest by B is an indirect acquisition of a 10% interest in the
insurance policy covering A's life, the acquisition is not a
reportable policy sale.
(12) Example 12. The facts are the same as in Example 11 in
paragraph (g)(11) of this section, except that A is no longer an
employee of Partnership X when B acquires the profits interest in
Partnership X, and Partnership X does not have any ongoing financial
obligations to A. Also, B acquires only a 5% partnership interest in
exchange for a cash payment of $500,000. Partnership X does not own
an interest in any other life insurance policies, and the gross
value of its assets is $10 million. Although neither Partnership X
nor B has a substantial family, business, or financial relationship
with A at the time of B's indirect acquisition of an interest in the
policy covering A's life, because B's profits interest in
Partnership X does not exceed 5%, and because no more than 50% of
Partnership X's asset value consists of life insurance contracts,
the exception in paragraph (c)(2)(iii)(B) of this section applies,
and B's indirect acquisition of an interest in the policy covering
A's life is not a reportable policy sale.
0
Par. 3. Section 1.101-6 is amended by revising paragraph (b) to read as
follows:
Sec. 1.101-6 Effective date.
* * * * *
(b) Notwithstanding paragraph (a) of this section, for purposes of
section 6050Y, Sec. 1.101-1(b), (c), (d), (e), (f), and (g) apply to
reportable policy sales made after December 31, 2017, and to reportable
death benefits paid after December 31, 2017. For any other purpose,
Sec. 1.101-1(b), (c), (d), (e), (f), and (g) apply to transfers of
life
[[Page 11024]]
insurance contracts, or interests therein, made after the date the
Treasury decision adopting these regulations as final regulations is
published in the Federal Register.
0
Par. 4. Section 1.6050Y-1 is added to read as follows:
Sec. 1.6050Y-1 Information reporting for reportable policy sales,
transfers of life insurance contracts to foreign persons, and
reportable death benefits.
(a) Definitions. The following definitions apply for purposes of
this section and Sec. Sec. 1.6050Y-2 through 1.6050Y-4:
(1) Acquirer. The term acquirer means any person that acquires an
interest in a life insurance contract (through a direct acquisition or
indirect acquisition of the interest) in a reportable policy sale.
(2) Buyer. The term buyer means, with respect to any interest in a
life insurance contract that has been transferred in a reportable
policy sale, the person that was the most recent acquirer of that
interest in a reportable policy sale as of the date reportable death
benefits are paid under the contract.
(3) Direct acquisition of an interest in a life insurance contract.
The term direct acquisition of an interest in a life insurance contract
has the meaning given to it in Sec. 1.101-1(e)(3)(i).
(4) Foreign person. The term foreign person means a person that is
not a United States person, as defined in section 7701(a)(30).
(5) Indirect acquisition of an interest in a life insurance
contract. The term indirect acquisition of an interest in a life
insurance contract has the meaning given to it in Sec. 1.101-
1(e)(3)(ii).
(6) Interest in a life insurance contract. The term interest in a
life insurance contract has the meaning given to it in Sec. 1.101-
1(e)(1).
(7) Investment in the contract--(i) Definition of investment in the
contract. With respect to the original policyholder of a life insurance
contract, the term investment in the contract on any date means that
person's investment in the contract under section 72(e)(6) on that
date. With respect to any other person, the term investment in the
contract on any date means the estimate of investment in the contract
on that date.
(ii) Definition of estimate of investment in the contract. The term
estimate of investment in the contract with respect to any person,
other than the original policyholder, means, on any date, the aggregate
amount of premiums paid for the contract by that person before that
date, less the aggregate amount received under the contract by that
person before that date to the extent such information is known to or
can reasonably be estimated by the issuer or payor.
(8) Issuer--(i) In general. Except as provided in paragraphs
(a)(8)(ii) and (iii) of this section, the term issuer generally means,
on any date, with respect to any interest in a life insurance contract,
any person that bears any part of the risk with respect to the life
insurance contract on that date and any person responsible on that date
for administering the contract, including collecting premiums and
paying death benefits. For instance, if a reinsurer reinsures on an
indemnity basis all or a portion of the risks that the original issuer
(and continuing contract administrator) might otherwise have incurred
with respect to a life insurance contract, both the reinsurer and the
original issuer of the contract are issuers of the life insurance
contract for purposes of this paragraph (a)(8)(i). Any designee of an
issuer is also considered an issuer for purposes of this paragraph
(a)(8)(i).
(ii) 6050Y(a) issuer. For purposes of information reporting under
section 6050Y(a) and Sec. 1.6050Y-2, the 6050Y(a) issuer is the issuer
that is responsible for administering the life insurance contract,
including collecting premiums and paying death benefits under the
contract, on the date of the reportable policy sale.
(iii) 6050Y(b) issuer. For purposes of information reporting under
section 6050Y(b) and Sec. 1.6050Y-3, a 6050Y(b) issuer is:
(A) Any person that receives a RPSS with respect to a life
insurance contract or interest therein (or, in the case of a designee,
receives notice that the issuer for whom it serves as designee received
a RPSS), and is or was, on or before the date of receipt of the RPSS,
an issuer with respect to the life insurance contract; or
(B) Any person that receives notice of a transfer to a foreign
person of the life insurance contract and is or was, on the date of
transfer or on the date of receipt of the notice, an issuer with
respect to the life insurance contract, unless:
(1) That person (or, in the case of a designee, the issuer for whom
it serves as designee) is not responsible for administering the life
insurance contract, including collecting premiums and paying death
benefits under the contract, on the date the notice of a transfer to a
foreign person of a life insurance contract is received; and
(2) That person, or its designee, provides the issuer that is
responsible on that date for administering the life insurance contract,
including collecting premiums and paying death benefits under the
contract, with such notice and with any available information necessary
to accomplish reporting under section 6050Y(b) and Sec. 1.6050Y-3.
(iv) Designee. A person is treated as the designee of an issuer for
purposes of this paragraph (a)(8) only if so designated in writing,
including electronically. The designation must be signed and
acknowledged, in writing or electronically, by the person named as
designee, or that person's representative, and by the issuer making the
designation, or its representative.
(9) Life insurance contract. The term life insurance contract has
the meaning given to it in section 7702(a). A life insurance contract
may also be referred to as a life insurance policy.
(10) Notice of a transfer to a foreign person. The term notice of a
transfer to a foreign person means any notice of a transfer of title
to, possession of, or legal ownership of a life insurance contract
received by a 6050Y(b) issuer, including information provided for
nontax purposes such as a change of address notice for purposes of
sending statements or for other purposes, and information relating to
loans, premiums, or death benefits with respect to the contract unless
the 6050Y(b) issuer knows that no transfer of the life insurance
contract has occurred or knows that the transferee is a United States
person. For this purpose, a 6050Y(b) issuer may rely on a Form W-9,
Request for Taxpayer Identification Number and Certification, or a
valid substitute form, that meets the requirements of Sec. 1.1441-
1(d)(2) (substituting ``6050Y(b) issuer'' for ``withholding agent''),
that indicates the transferee is a United States person. For instance,
a change of address notice that changes the address to a foreign
address or other updates to the information relating to the payment of
premiums that includes foreign banking or other foreign financial
institution information is notice of a transfer to a foreign person
unless the 6050Y(b) issuer knows that no transfer has occurred or the
transferee is a United States person.
(11) Payor. The term payor means any person making a payment of
reportable death benefits.
(12) Reportable death benefits. The term reportable death benefits
means amounts paid by reason of the death of the insured under a life
insurance contract that are attributable to an interest in the life
insurance contract that was transferred in a reportable policy sale.
(13) Reportable death benefits payment recipient. The term
reportable death benefits payment recipient means
[[Page 11025]]
any person that receives reportable death benefits as a beneficiary
under a life insurance contract or as the holder of an interest in a
life insurance contract.
(14) Reportable policy sale. The term reportable policy sale has
the meaning given to it in Sec. 1.101-1(c).
(15) Reportable policy sale payment. The term reportable policy
sale payment generally means the total amount of cash and the fair
market value of any other consideration transferred, or to be
transferred, in a reportable policy sale, including any amount of a
reportable policy sale payment recipient's debt assumed by the acquirer
in a reportable policy sale. In the case of an indirect acquisition of
an interest in a life insurance contract that is a reportable policy
sale, the reportable policy sale payment is the amount of cash and the
fair market value of any other consideration transferred for the
ownership interest in the entity, including the amount of any debt
assumed by the acquirer, that is appropriately allocable to the
interest in the life insurance contract held by the entity.
(16) Reportable policy sale payment recipient. The term reportable
policy sale payment recipient means any person that receives a
reportable policy sale payment in a reportable policy sale. A broker or
other intermediary that retains a portion of the cash or other
consideration transferred in a reportable policy sale is also a
reportable policy sale payment recipient.
(17) Reportable policy sale statement. The term reportable policy
sale statement (RPSS) means a statement furnished by an acquirer to an
issuer under section 6050Y(a)(2) and Sec. 1.6050Y-2(d)(2)(i).
(18) Seller. The term seller means any person that--
(i) Holds an interest in a life insurance contract and transfers
that interest, or any part of that interest, to an acquirer in a
reportable policy sale; or
(ii) Owns a life insurance contract and transfers title to,
possession of, or legal ownership of that life insurance contract to a
foreign person.
(19) Transfer of an interest in a life insurance contract. The term
transfer of an interest in a life insurance contract has the meaning
given to it in Sec. 1.101-1(e)(2).
(20) United States person. The term United States person has the
meaning given to it in section 7701(a)(30).
(b) Applicability date. This section and Sec. Sec. 1.6050Y-2
through 1.6050Y-3 apply to reportable policy sales made after December
31, 2017. This section and Sec. 1.6050Y-4 apply to reportable death
benefits paid after December 31, 2017. However, for reportable policy
sales and payments of reportable death benefits occurring after
December 31, 2017, and before the date final regulations are published
in the Federal Register, transition relief will be provided as follows:
(1) For reportable policy sales occurring after December 31, 2017,
and before the date final regulations are published in the Federal
Register, statements required to be furnished to issuers under section
6050Y(a)(2) and Sec. 1.6050Y-2 must be furnished by the later of the
applicable deadline set forth in final regulations or 60 days after the
date final regulations are published in the Federal Register.
(2) For reportable policy sales occurring after December 31, 2017,
and before the date final regulations are published in the Federal
Register, returns required to be filed under section 6050Y(a)(1) and
(b)(1), Sec. 1.6050Y-2, and Sec. 1.6050Y-3 and statements required to
be furnished to payment recipients and sellers under section
6050Y(a)(2) and (b)(2), Sec. 1.6050Y-2, and Sec. 1.6050Y-3 must be
filed or furnished by the later of the applicable deadline set forth in
final regulations or 90 days after the date final regulations are
published in the Federal Register.
(3) For payments of reportable death benefits paid after December
31, 2017, and before the date final regulations are published in the
Federal Register, returns required to be filed under section
6050Y(c)(1) and Sec. 1.6050Y-4 and statements required to be furnished
to payment recipients under section 6050Y(c)(2) and Sec. 1.6050Y-4
must be filed or furnished by the later of the applicable deadline set
forth in final regulations or 90 days after the date final regulations
are published in the Federal Register.
0
Par. 5. Section 1.6050Y-2 is added to read as follows:
Sec. 1.6050Y-2 Information reporting by acquirers for reportable
policy sale payments.
(a) Requirement of reporting. Except as provided in paragraph (f)
of this section, every person that is an acquirer in a reportable
policy sale during any calendar year must file a separate information
return with the Internal Revenue Service (IRS) in the form and manner
as required by the IRS for each reportable policy sale payment
recipient, including any seller that is a reportable policy sale
payment recipient. Each return must include the following information
with respect to the seller or other reportable policy sale payment
recipient to which the return relates:
(1) The name, address, and taxpayer identification number (TIN) of
the acquirer;
(2) The name, address, and TIN of the seller or other reportable
policy sale payment recipient to which the return relates;
(3) The date of the reportable policy sale;
(4) The name of the 6050Y(a) issuer of the life insurance contract
acquired and the policy number of the life insurance contract;
(5) The aggregate amount of reportable policy sale payments made,
or to be made, to the seller or other reportable policy sale payment
recipient to which the return relates with respect to the reportable
policy sale; and
(6) Any other information that is required by the form or its
instructions.
(b) Unified reporting. The information reporting requirement of
paragraph (a) of this section applies to each acquirer in a series of
prearranged transfers of an interest in a life insurance contract. In a
series of prearranged transfers, an acquirer's reporting obligation is
deemed satisfied if the information required by paragraph (a) of this
section with respect to that acquirer is timely reported on behalf of
that acquirer in a manner that is consistent with forms, instructions,
and other IRS guidance by one or more other acquirers or by a third
party information reporting contractor.
(c) Time and place for filing. Returns required to be made under
paragraph (a) of this section must be filed with the Internal Revenue
Service Center designated on the prescribed form or in its instructions
on or before February 28 (March 31 if filed electronically) of the year
following the calendar year in which the reportable policy sale
occurred. However, see Sec. 1.6050Y-1(b)(2) for transition rules.
(d) Requirement of and time for furnishing statements--(1)
Statements to reportable policy sale payment recipients--(i)
Requirement of furnishing statement. Every person required to file an
information return under paragraph (a) of this section with respect to
a reportable policy sale payment recipient must furnish in the form and
manner prescribed by the IRS to the reportable policy sale payment
recipient whose name is set forth in that return a written statement
showing the information required by paragraph (a) of this section with
respect to the reportable policy sale payment recipient and the name,
address, and phone number of the information contact of the person
furnishing the written statement. The contact information of the person
[[Page 11026]]
furnishing the written statement must provide direct access to a person
that can answer questions about the statement. The statement is not
required to include information with respect to any other reportable
policy sale payment recipient in the reportable policy sale or
information about reportable policy sale payments to any other
reportable policy sale payment recipient.
(ii) Time for furnishing statement. Each statement required by
paragraph (d)(1)(i) of this section to be furnished to any reportable
policy sale payment recipient must be furnished on or before February
15 of the year following the calendar year in which the reportable
policy sale occurred. However, see Sec. 1.6050Y-1(b)(2) for transition
rules.
(2) Statements to 6050Y(a) issuers--(i) Requirement of furnishing
RPSS--(A) In general. Except as provided in paragraph (d)(2)(i)(B) of
this section, every person required to file a return under paragraph
(a) of this section must furnish in the form and manner prescribed by
the IRS to the 6050Y(a) issuer whose name is required to be set forth
in the return a RPSS with respect to each reportable policy sale
payment recipient that is also a seller. Each RPSS must show the
information required by paragraph (a) of this section with respect to
the seller named therein, except that the RPSS is not required to set
forth the amount of any reportable policy sale payment. Each RPSS must
also show the name, address, and phone number of the information
contact of the person furnishing the RPSS. This contact information
must provide direct access to a person that can answer questions about
the RPSS.
(B) Exception from reporting. A RPSS is not required to be
furnished to the 6050Y(a) issuer by an acquirer acquiring an interest
in a life insurance contract in an indirect acquisition.
(ii) Time for furnishing RPSS. Except as otherwise provided in this
paragraph (d)(2)(ii), each RPSS required by paragraph (d)(2)(i) of this
section to be furnished to a 6050Y(a) issuer must be furnished by the
later of 20 calendar days after the reportable policy sale, or 5
calendar days after the end of the applicable state law rescission
period. However, if the later date is after January 15 of the year
following the calendar year in which the reportable policy sale
occurred, the RPSS must be furnished by January 15 of the year
following the calendar year in which the reportable policy sale
occurred. See Sec. 1.6050Y-1(b)(1) for transition rules.
(3) Unified reporting. The information reporting requirements of
paragraphs (d)(1)(i) and (d)(2)(i) of this section apply to each
acquirer in a series of prearranged transfers of an interest in a life
insurance contract, as described in paragraph (b) of this section. In a
series of prearranged transfers of an interest in a life insurance
contract, an acquirer's obligation to furnish statements is deemed
satisfied if the information required by paragraphs (d)(1)(i) and
(d)(2)(i) of this section with respect to that acquirer is timely
reported on behalf of that acquirer consistent with forms,
instructions, and other IRS guidance by one or more other acquirers or
by a third party information reporting contractor.
(e) Notice of rescission of a reportable policy sale. Any person
that has filed a return required by section 6050Y(a)(1) and this
section with respect to a reportable policy sale must file a corrected
return within 15 calendar days of the receipt of notice of the
rescission of the reportable policy sale. Any person that has furnished
a written statement under section 6050Y(a)(2) and this section with
respect to the reportable policy sale must furnish the recipient of
that statement with a corrected statement within 15 calendar days of
the receipt of notice of the rescission of the reportable policy sale.
(f) Exceptions to requirement to file. An acquirer that is a
foreign person is not required to file an information return under
paragraph (a) of this section with respect to a reportable policy sale
unless--
(1) The life insurance contract (or interest therein) transferred
in the sale is on the life of an insured who is a United States person
at the time of the sale; or
(2) The sale is subject to the laws of one or more States of the
United States that pertain to acquisitions or sales of life insurance
contracts (or interests therein).
(g) Cross-reference to penalty provisions--(1) Failure to file
correct information return. For provisions relating to the penalty
provided for failure to file timely a correct information return
required under section 6050Y(a)(1) and this section, see section 6721
and Sec. 301.6721-1 of this chapter. See Sec. 301.6724-1 of this
chapter for the waiver of a penalty if the failure is due to reasonable
cause and is not due to willful neglect.
(2) Failure to furnish correct statement. For provisions relating
to the penalty provided for failure to furnish a correct statement to
identified persons under section 6050Y(a)(2) and this section, see
section 6722 and Sec. 301.6722-2 of this chapter. See Sec. 301.6724-1
of this chapter for the waiver of a penalty if the failure is due to
reasonable cause and is not due to willful neglect.
0
Par. 6. Section 1.6050Y-3 is added to read as follows:
Sec. 1.6050Y-3 Information reporting by 6050Y(b) issuers for
reportable policy sales and transfers of life insurance contracts to
foreign persons.
(a) Requirement of reporting. Except as provided in paragraph (f)
of this section, each 6050Y(b) issuer, that receives a RPSS or any
notice of a transfer to a foreign person must file an information
return with the Internal Revenue Service (IRS) with respect to each
seller in the form and manner prescribed by the IRS. The return must
include the following information with respect to the seller:
(1) The name, address, and taxpayer identification number (TIN) of
the seller;
(2) The investment in the contract with respect to the seller;
(3) The amount the seller would have received if the seller had
surrendered the life insurance contract on the date of the reportable
policy sale or the transfer of the contract to a foreign person, or if
the date of the transfer to a foreign person is not known to the
6050Y(b) issuer, the date the 6050Y(b) issuer received notice of the
transfer; and
(4) Any other information that is required by the form or its
instructions.
(b) Unified reporting. Each 6050Y(b) issuer subject to the
information reporting requirement of paragraph (a) of this section must
satisfy that requirement, but a 6050Y(b) issuer's reporting obligation
is deemed satisfied if the information required by paragraph (a) of
this section with respect to that 6050Y(b) issuer is timely reported on
behalf of that 6050Y(b) issuer in a manner that is consistent with
forms, instructions, and other IRS guidance by one or more other
6050Y(b) issuers or by a third party information reporting contractor.
(c) Time and place for filing. Except as otherwise provided in this
paragraph (c), returns required to be made under paragraph (a) of this
section must be filed with the Internal Revenue Service Center
designated on the prescribed form or in its instructions on or before
February 28 (March 31 if filed electronically) of the year following
the calendar year in which the reportable policy sale or the transfer
of the contract to a foreign person occurred. If the 6050Y(b) issuer
does not receive notice of a transfer to a foreign person until after
January 31 of the calendar year following the year in which the
transfer occurred, returns required to be made
[[Page 11027]]
under paragraph (a) of this section must be filed by the later of
February 28 (March 31 if filed electronically) of the calendar year
following the year in which the transfer occurred or thirty days after
the date notice is received. See Sec. 1.6050Y-1(b)(2) for transition
rules.
(d) Requirement of and time for furnishing statements--(1)
Requirement of furnishing statement. Every 6050Y(b) issuer filing a
return required by paragraph (a) of this section must furnish to each
seller that is a reportable policy sale payment recipient or makes a
transfer to a foreign person and whose name is required to be set forth
in the return a written statement showing the information required by
paragraph (a) of this section with respect to that seller and the name,
address, and phone number of the information contact of the person
filing the return. This contact information must provide direct access
to a person that can answer questions about the statement.
(2) Time for furnishing statement. Except as otherwise provided in
this paragraph (d)(2), each statement required by paragraph (d)(1) of
this section to be furnished to any seller must be furnished on or
before February 15 of the year following the calendar year in which the
reportable policy sale or transfer to a foreign person occurred. If a
6050Y(b) issuer does not receive notice of a transfer to a foreign
person until after January 31 of the calendar year following the year
in which the transfer occurred, each statement required to be made
under paragraph (d) of this section must be furnished by the date
thirty days after the date notice is received. See Sec. 1.6050Y-
1(b)(2) for transition rules.
(3) Unified reporting. Each 6050Y(b) issuer subject to the
information reporting requirement of paragraph (d)(1) of this section
must satisfy that requirement, but a 6050Y(b) issuer's reporting
obligation is deemed satisfied if the information required by paragraph
(d)(1) of this section with respect to that 6050Y(b) issuer is timely
reported on behalf of that 6050Y(b) issuer consistent with forms,
instructions, and other IRS guidance by one or more other 6050Y(b)
issuers or by a third party information reporting contractor.
(e) Notice of rescission of a reportable policy sale or transfer of
an insurance contract to a foreign person. Any 6050Y(b) issuer that has
filed a return required by section 6050Y(b)(1) and this section with
respect to a reportable policy sale or transfer of an insurance
contract to a foreign person must file a corrected return within 15
calendar days of the receipt of notice of the rescission of the
reportable policy sale or transfer of the insurance contract to a
foreign person. Any 6050Y(b) issuer that has furnished a written
statement under section 6050Y(b)(2) and this section with respect to
the reportable policy sale or transfer of the insurance contract to a
foreign person must furnish the recipient of that statement with a
corrected statement within 15 calendar days of the receipt of notice of
the rescission of the reportable policy sale or transfer of the
insurance contract to a foreign person.
(f) Exceptions to requirement to file. A 6050Y(b) issuer is not
required to file an information return under paragraph (a) of this
section when either paragraph (f)(1) or (2) of this section applies.
(1) Except as otherwise provided in this paragraph (f)(1), the
6050Y(b) issuer obtains documentation upon which it may rely to treat a
seller of the contract as a foreign beneficial owner in accordance with
Sec. 1.1441-1(e)(1)(ii), applying in such case the provisions of Sec.
1.1441-1 by substituting the term ``6050Y(b) issuer'' for the term
``withholding agent'' and without regard to the fact that that these
provisions apply only to amounts subject to withholding under chapter 3
of subtitle A of the Internal Revenue Code. A 6050Y(b) issuer may also
obtain from a seller that is a partnership or trust, in addition to
documentation establishing the entity's foreign status, a written
certification from the entity that no beneficial owner of any portion
of the proceeds of the sale is a United States person. In such a case,
the issuer may rely upon the written certification to treat the
partnership or trust as a foreign beneficial owner for purposes of this
paragraph (f)(1) provided that the seller does not have actual
knowledge that a United States person is the beneficial owner of all or
a portion of the proceeds of the sale. See Sec. 1.1441-1(c)(6)(ii) for
the definition of beneficial owner that applies for purposes of this
paragraph (f)(1). Additionally, for certifying its status as a foreign
beneficial owner (as applicable) for purposes of this paragraph (f)(1),
a seller that is required to report any of the income from the sale as
effectively connected with the conduct of a trade or business in the
United States under section 864(b) is required to provide to the
6050Y(b) issuer a Form W-8ECI, Certificate of Foreign Person's Claim
that Income is Effectively Connected with the Conduct of a Trade or
Business in the United States. If a 6050Y(b) issuer obtains a Form W-
8ECI from a seller with respect to the sale or has reason to know that
income from the sale is effectively connected with the conduct of a
trade or business in the United States under section 864(b), the
exception to reporting described in this paragraph (f)(1) does not
apply.
(2) The 6050Y(b) issuer receives notice of a transfer to a foreign
person, but does not receive a RPSS with respect to the transfer,
provided that, at the time the notice is received--
(i) The 6050Y(b) issuer is not a United States person;
(ii) The life insurance contract (or interest therein) transferred
is not on the life of a United States person; and
(iii) The 6050Y(b) issuer has not classified the seller as a United
States person in its books and records.
(g) Cross-reference to penalty provisions--(1) Failure to file
correct information return. For provisions relating to the penalty
provided for failure to file timely a correct information return
required under section 6050Y(b)(1) and this section, see section 6721
and Sec. 301.6721-1 of this chapter. See Sec. 301.6724-1 of this
chapter for the waiver of a penalty if the failure is due to reasonable
cause and is not due to willful neglect.
(2) Failure to furnish correct statement. For provisions relating
to the penalty provided for failure to furnish a correct statement to
identified persons under section 6050Y(b)(2) and this section, see
section 6722 and Sec. 301.6722-2 of this chapter. See Sec. 301.6724-1
of this chapter for the waiver of a penalty if the failure is due to
reasonable cause and is not due to willful neglect.
0
Par. 7. Section 1.6050Y-4 is added to read as follows:
Sec. 1.6050Y-4 Information reporting by payors for reportable death
benefits.
(a) Requirement of reporting. Except as provided in paragraph (e)
of this section, every person that is a payor of reportable death
benefits during any calendar year must file a separate information
return for such calendar year with the Internal Revenue Service (IRS)
for each reportable death benefits payment recipient in the form and
manner prescribed by the IRS. The return must include the following
information with respect to the reportable death benefits payment
recipient to which the return relates:
(1) The name, address, and taxpayer identification number (TIN) of
the payor;
(2) The name, address, and TIN of the reportable death benefits
payment recipient;
(3) The date of the payment;
(4) The gross amount of payments made to the reportable death
benefits payment recipient during the taxable year;
[[Page 11028]]
(5) The payor's estimate of the investment in the contract with
respect to the buyer, limited to the payor's estimate of the buyer's
investment in the contract with respect to the interest for which the
reportable death benefits payment recipient was paid; and
(6) Any other information that is required by the form or its
instructions.
(b) Time and place for filing. Except as otherwise provided in
Sec. 1.6050Y-1(b)(3), returns required to be made under this section
must be filed with the Internal Revenue Service Center designated in
the instructions for the form on or before February 28 (March 31 if
filed electronically) of the year following the calendar year in which
the payment of reportable death benefits was made.
(c) Requirement of and time for furnishing statements--(1)
Requirement of furnishing statement. Every person required to file an
information return under paragraph (a) of this section must furnish to
each reportable death benefits payment recipient whose name is required
to be set forth in that return a written statement showing the
information required by paragraph (a) of this section with respect to
that reportable death benefits payment recipient and the name, address,
and phone number of the information contact of the payor. This contact
information must provide direct access to a person that can answer
questions about the statement.
(2) Time for furnishing statement. Each statement required by
paragraph (c)(1) of this section to be furnished to any reportable
death benefits payment recipient must be furnished on or before January
31 of the year following the calendar year in which the payment of
reportable death benefits was made. However, see Sec. 1.6050Y-1(b)(3)
for transition rules.
(d) Notice of rescission of a reportable policy sale. Any person
that has filed a return required by section 6050Y(c) and this section
with respect to a payment of reportable death benefits must file a
corrected return within 15 calendar days of the receipt of notice of
the rescission of the buyer's reportable policy sale. Any person that
has furnished a written statement under section 6050Y(c)(2) and this
section with respect to a payment of reportable death benefits must
furnish the recipient of that statement with a corrected statement
within 15 calendar days of the receipt of notice of the rescission of
the buyer's reportable policy sale.
(e) Exceptions to requirement to file. A payor is not required to
file an information return under paragraph (a) of this section with
respect to a payment of reportable death benefits when either paragraph
(e)(1) or (2) of this section applies.
(1) Except as otherwise provided in this paragraph (e)(1), the
payor obtains documentation in accordance with Sec. 1.1441-1(e)(1)(ii)
upon which it may rely to treat the reportable death benefits payment
recipient as a foreign beneficial owner of the reportable death
benefits, applying in such case the provisions of Sec. 1.1441-1 by
substituting the term ``payor'' for the term ``withholding agent'' and
without regard to the fact that the provisions apply only to amounts
subject to withholding under chapter 3 of subtitle A of the Internal
Revenue Code. A payor may also obtain from a partnership or trust that
is a reportable death benefits recipient, in addition to documentation
establishing the entity's foreign status, a written certification from
the entity that no beneficial owner of any portion of the reportable
death benefits payment is a United States person. In such a case, a
payor may rely upon the written certification to treat the partnership
or trust as a foreign beneficial owner for purposes of this paragraph
(e)(1) provided that the payor does not have actual knowledge that a
United States person is the beneficial owner of all or a portion of the
reportable death benefits payment. See Sec. 1.1441-1(c)(6)(ii) for the
definition of beneficial owner that applies for purposes of this
paragraph (e)(1). Additionally, for certifying its status as a foreign
beneficial owner (as applicable) for purposes of this paragraph (e)(1),
a reportable death benefits payment recipient that is required to
report any of the income from the sale as effectively connected with
the conduct of a trade or business in the United States under section
864(b) is required to provide to the payor a Form W-8ECI, Certificate
of Foreign Person's Claim that Income is Effectively Connected with the
Conduct of a Trade or Business in the United States. If a payor obtains
a Form W-8ECI from a reportable death benefits payment recipient with
respect to the payment of reportable death benefits or has reason to
know that the payment is effectively connected with the conduct of a
trade or business of the recipient in the United States under section
864(b), the exception to reporting described in this paragraph (e)(1)
does not apply.
(2) The buyer obtained the life insurance contract (or interest
therein) under which reportable death benefits are paid in a reportable
policy sale to which the exception to reporting described in Sec.
1.6050Y-3(f)(2) applies.
(f) Cross-reference to penalty provisions--(1) Failure to file
correct information return. For provisions relating to the penalty
provided for failure to file timely a correct information return
required under section 6050Y(c)(1) and this section, see section 6721
and Sec. 301.6721-1 of this chapter. See Sec. 301.6724-1 of this
chapter for the waiver of a penalty if the failure is due to reasonable
cause and is not due to willful neglect.
(2) Failure to furnish correct statement. For provisions relating
to the penalty provided for failure to furnish a correct statement to
identified persons under section 6050Y(c)(2) and this section, see
section 6722 and Sec. 301.6722-2 of this chapter. See Sec. 301.6724-1
of this chapter for the waiver of a penalty if the failure is due to
reasonable cause and is not due to willful neglect.
Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2019-05400 Filed 3-22-19; 8:45 am]
BILLING CODE 4830-01-P
