A reportable policy sale happens when the ownership of a life insurance policy is transferred in exchange for money or other valuable consideration. The sale involves a buyer who has no substantial family, business, or financial interest in the insured person.
This rule was created under the Tax Cuts and Jobs Act (TCJA) of 2017 and comes with specific IRS reporting obligations.
Key Aspects of a Reportable Policy Sale
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Ownership Transfer: The policyholder sells their life insurance policy to another individual or entity.
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No Substantial Interest: The buyer has no pre-existing substantial interest in the insured, such as a family or business relationship.
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Valuable Consideration: The transaction involves value, not a gift or inheritance.
👉 Related: 1099-LS Software
IRS Reporting Requirements
When a reportable policy sale occurs:
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The buyer must file Form 1099-LS, Reportable Policy Sale, to notify the IRS about the transaction.
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The insurance company must file Form 1099-SB, Seller’s Statement of Life Insurance Policy Sale, to report the seller’s basis and additional policy details.
👉 Related: IRS Form 1099-SB Filing Guide
Examples of Reportable Policy Sales
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A policy sold to an investor or life settlement company.
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A sale under a viatical settlement agreement where the buyer is not a licensed viatical settlement provider.
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