SECTION 3. INTENDED

PROPOSED GUIDANCE

A. Information Reporting for Certain Life Insurance Contract Transactions

Section 6050Y provides that each of the returns required by § 6050Y are to be made “at such time and in such manner as the Secretary shall prescribe.” Treasury and the IRS intend to propose regulations under § 6050Y describing the manner by which and time at which the reporting requirements of § 6050Y must be satisfied. The proposed regulations will also clarify which parties are subject to the reporting requirements and other definitional issues. For example, Treasury and the IRS intend to define the term “reportable policy sale” in the proposed regula

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tions to include a viatical settlement. ⁴ In addition, Treasury and the IRS intend to clarify the extent to which § 6050Y applies to sales or acquisitions effected by transferors and transferees outside the U.S. and to sellers and issuers that are foreign persons for purposes of reporting under § 6050Y(b) or (c).

i. Section 6050Y(a) Reporting of Payments by Acquirer in a Reportable Policy Sale

Treasury and the IRS intend to propose regulations under § 6050Y(a)(1) requiring every person who acquires a life insurance contract or any interest in a life insurance contract in a reportable policy sale to file an information return, to be made according to forms and instructions to be published by the IRS, reporting the following information to the IRS: (1) the acquirer’s name, address, and TIN; (2) the name, address, and TIN of each recipient of payment in the reportable policy sale; (3) the date of the sale; (4) the name of the issuer of the life insurance contract sold and the policy number of such contract; and (5) the amount of each payment.

Treasury and the IRS intend to propose regulations under § 6050Y(a)(2) requiring every person required to file a return under § 6050Y(a)(1) to furnish written statements to each payment recipient and issuer whose name is required to be set forth in such return. The statements will be required to set forth the name, address, and phone number of the information contact of the acquirer, together with the information required to be reported to the IRS under § 6050Y(a)(1), except that the amount of each payment and the name, address, and TIN of payment recipients other than the seller need not be reported to the issuer. The requirement to provide such statements may be satisfied by furnishing a copy of the information return provided to the IRS (provided the return includes the name, address, and phone number of the acquirer’s information contact, or this information is added to the copy furnished to the payment recipient), or an acceptable substitute statement.

Treasury and the IRS intend to propose regulations that will define “acquirer” for

purposes of § 6050Y to be any person who acquires a life insurance contract, or an interest in a life insurance contract, directly or indirectly, and who has no substantial family, business, or financial relationship with the insured apart from the acquirer’s interest in such life insurance contract. The proposed regulations may further refine the definition of an “acquirer” for purposes of § 6050Y. For example, the proposed regulations may define “acquirer” in a reportable policy sale to include any person, including the life settlement or viatical settlement provider or financing entity, that takes title or possession for state law purposes or acquires a beneficial interest in the life insurance contract at any time. The statute defines “indirectly,” for purposes of a reportable policy sale, as the acquisition of an interest in a partnership, trust, or other entity that holds an interest in the life insurance contract. The proposed regulations may further refine the definition of “indirectly” for purposes of § 6050Y reporting.

Treasury and the IRS intend to propose regulations regarding the definition of a reportable payment for purposes of § 6050Y. Section 6050Y(d)(1) defines “payment,” with respect to any reportable policy sale, as “the amount of cash and the fair market value of any consideration transferred in the sale.” Treasury and the IRS intend to clarify that a reportable payment may include payments to persons other than the seller, such as brokers and, potentially, life settlement providers acting as intermediaries. Additionally, Treasury and the IRS intend to clarify that the “payment” to the seller reported under § 6050Y(a) is the seller’s net proceeds. The net proceeds equal the gross proceeds minus any selling expenses (for example, broker’s fees and commissions).

ii. Section 6050Y(b) Reporting of Transferor’s Investment in the Contract by Issuer (Reportable Policy Sale or Transfer to a Foreign Person)

Treasury and the IRS intend to propose regulations implementing reporting obligations under § 6050Y(b) on any issuer of a life insurance contract who has either

(1) received the statement required by § 6050Y(a)(2) to be furnished by the acquirer in a reportable policy sale or (2) has received notice of a transfer of a life insurance contract to a foreign person.

Section 6050Y(d)(3) defines “issuer” to mean “any life insurance company that bears the risk with respect to a life insurance contract on the date any return or statement is required to be made under this section.” Treasury and the IRS intend to limit the information reporting obligations imposed under § 6050Y(b) to the life insurance company that is responsible for administering the contract, including paying death benefits under the life insurance contract. Under the proposed regulations, the reporting obligations would not apply, for instance, to a reinsurer in an indemnity contract covering 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. This proposed definition of “issuer” will reduce the burden on reporting life insurance companies and prevent duplicative reporting.

Treasury and the IRS intend to propose regulations under § 6050Y(b)(1) requiring issuers who have received a statement under § 6050Y(a)(2) reporting a reportable policy sale or notice of a transfer of a life insurance contract to a foreign person to file an information return, to be made according to forms and instructions to be published by the IRS, reporting the following information to the IRS: (1) the name, address, and TIN of each seller who transfers an interest in a life insurance contract; (2) the investment in the contract (as defined in § 72(e)(6)) with respect to such seller; (3) the policy number of such contract; and (4) the amount that would have been received by the policyholder upon surrender of the contract. Treasury and the IRS intend to propose regulations requiring the issuer to report the amount that would have been received by the policyholder upon surrender of the contract because this information is needed to determine the amount of the seller’s gain that is ordinary income. See Rev. Rul. 2009–13; see also Rev. Rul. 2009–14. Treasury and the IRS intend to propose regulations under § 6050Y(b)(2) requiring

4Treasury and the IRS are also considering how to distinguish viatical settlements from other life settlement transactions for information reporting purposes.

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every issuer required to make a return under § 6050Y(b)(1) to furnish written statements to each seller whose name is required to be set forth in a return made under § 6050Y(b)(1). The statements will be required to set forth the name, address, and phone number of the information contact of the issuer, together with the information required to be reported to the IRS under § 6050Y(b)(1) and the proposed regulations. The requirement to provide such statements may be satisfied by furnishing a copy of the information return provided to the IRS (provided the return includes the name, address, and phone number of the issuer’s information contact, or this information is added to the copy furnished to the seller), or an acceptable substitute statement.

Treasury and the IRS intend to propose regulations defining “seller” for purposes of § 6050Y(b) to include any person who transfers an interest in a life insurance contract to an acquirer in a reportable policy sale or to a foreign person.

Treasury and the IRS intend to define the term “investment in the contract” that is required to be reported by the issuer with respect to a seller. Section 6050Y(b) requires an issuer to report the “investment in the contract (as defined in section 72(e)(6)) with respect to such seller.” Section 72(e)(6) defines the “investment in the contract” as of any date as the aggregate amount of premiums or other consideration paid for the contract before that date, less the aggregate amount received under the contract before that date to the extent that amount was excludable from gross income. With respect to the original policyholder, the issuer will have all of the information required to determine the seller’s investment in the contract. With respect to a seller other than the original policyholder, an issuer may not have all the information required to determine the seller’s investment in the contract, as defined in § 72(e)(6), because the acquirer of the contract from the original policyholder is not required under § 6050Y(a) to report to the issuer the amount paid for the contract. For this reason, the issuer’s obligation to report the “investment in the contract” on any date will be limited to the information that is known to the issuer (in general, the amount of premiums received from the seller for the

contract before that date, less the aggregate amount paid to the seller under the contract before that date).

Treasury and the IRS intend to propose regulations defining notice of a transfer of a life insurance contract to a foreign person for purposes of § 6050Y(b) as any notice, including information provided for nontax purposes such as change of address notices for purposes of sending statements or for other purposes, or information relating to loans, premiums, or death benefits with respect to the contract. See H.R. Rep. No. 115–466, at 485 (2017) (Conf. Rep.).

Issuers of life insurance contracts acquired by a domestic person in a reportable policy sale are subject to the reporting obligations of § 6050Y(b) only if the issuer receives the statement required by § 6050Y(a)(2) to be furnished by the acquirer in a reportable policy sale to the issuer. Treasury and the IRS intend to propose regulations providing that issuers who have not received a written statement from an acquirer under § 6050Y(a)(2), but who have received notice of a transfer of a life insurance contract to a domestic person, may optionally file a return with the IRS under § 6050Y(b)(1) and furnish written statements to sellers under § 6050Y(b)(2), unless the issuer knows the transfer is not a reportable policy sale.

iii. Section 6050Y(c) Reporting of Reportable Death Benefits by Payor

Treasury and the IRS intend to propose regulations related to the reporting obligations under § 6050Y(c) on persons making payments of reportable death benefits during any taxable year. Every person making payments of reportable death benefits during any taxable year is subject to the reporting obligations of § 6050Y(c), regardless of whether such person received a statement from the acquirer in the reportable policy sale under § 6050Y(a)(2).

Treasury and the IRS intend to propose regulations under § 6050Y(c)(1) requiring a payor of reportable death benefits to file an information return, to be made according to forms and instructions to be published by the IRS, reporting the following information to the IRS: (1) the payor’s name, address, and TIN; (2) the name, address, and TIN of each recipi

ent of such payment; (3) the date of each such payment; (4) the gross amount of each such payment; and (5) the payor’s estimate of the investment in the contract (as defined in § 72(e)(6)) with respect to the buyer.

Treasury and the IRS intend to propose regulations under § 6050Y(c)(2) requiring every person required to file a return under § 6050Y(c)(1) to furnish written statements to each recipient of reportable death benefits whose name is required to be set forth in a return made under § 6050Y(c)(1). The statements will be required to set forth the name, address, and phone number of the information contact of the payor, together with the information required to be reported to the IRS under § 6050Y(c)(1). The requirement to provide such statements may be satisfied by furnishing a copy of the information return provided to the IRS (provided the return includes the name, address, and phone number of the payor’s information contact, or this information is added to the copy furnished to the payment recipient), or an acceptable substitute statement.

Treasury and the IRS intend to define the term “estimate of the investment in the contract” that is required to be reported by the payor with respect to a buyer to include only the amount of premiums paid by the buyer under the contract, less the aggregate amount received by the buyer under the contract. In addition, Treasury and the IRS intend to define “buyer” in the proposed regulations. For example, the proposed regulations may define “buyer” to include any person either holding a beneficial interest in the life insurance contract or taking title or possession for state law purposes.

Section 6050Y(d)(4) defines “reportable death benefits” as “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 definition of “reportable policy sale” applies only to transfers made after December 31, 2017. Accordingly, death benefits are “reportable death benefits” under § 6050Y(d)(4), and are subject to the reporting requirements of § 6050Y(c), only if the death benefits are paid by reason of the death of the insured under a life insurance contract transferred after December 31, 2017, in a reportable policy sale.

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iv. Timing of Section 6050Y Reporting

Among other requirements, § 6050Y(a) requires the acquirer in a reportable policy sale to report the amount of each payment made in a reportable policy sale to the IRS and each payment recipient. Section 6050Y(b) requires each issuer of a life insurance contract who receives notice of a reportable policy sale via receipt of a statement required under § 6050Y(a)(2), or who receives notice of a transfer of a life insurance contract to a foreign person, to report the seller’s investment in the life insurance contract to the IRS and the seller. Section 6050Y(c) requires the payor of a reportable death benefit to report the payment to the IRS and each payment recipient.

The recipients of the written statements required to be furnished under § 6050Y may use the information therein to determine their taxable income. To facilitate recipients’ proper tax reporting, Treasury and the IRS intend to require that an acquirer furnish the written statements required under § 6050Y(a)(2) to an 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, if any, but in no event later than January 15 of the year following the calendar year in which the reportable policy sale occurs. Treasury and the IRS intend to require that all other written statements required under §§ 6050Y(a)(2), (b)(2), and (c)(2) be furnished to the recipients identified in the statute and regulations no later than January 31 of the year following the calendar year in which the reportable policy sale or reportable death benefit payment occurs. The earlier deadline for acquirers to furnish issuers with the written statements required under § 6050Y(a)(2) is needed because reporting under § 6050Y(b) is contingent on the issuer receiving either notice of a reportable policy sale via a written statement furnished under § 6050Y(a)(2) or notice of the transfer of a life insurance contract to a foreign person.

Treasury and the IRS intend to propose regulations requiring the returns required by §§ 6050Y(a)(1), (b)(1), and (c)(1) to be filed with the IRS no later than February 28 of the year following the calendar year

in which the reportable policy sale or reportable death benefit payment occurs, for paper returns, and no later than March 31 of the year following the calendar year in which the reportable policy sale or reportable death benefit payment occurs, for electronically filed returns.

Treasury and the IRS intend to propose regulations regarding reporting obligations upon the rescission of a reportable policy sale or transfer to a foreign person. Upon receiving notice of the rescission, any person who has filed a return required by § 6050Y with respect to the reportable policy sale or transfer would have 15 days to file a corrected return. Upon receiving notice of the rescission, any person who has furnished a written statement under § 6050Y with respect to the reportable policy sale or transfer would have 15 days to furnish the recipient of that statement with a corrected statement reporting the rescission.

The reporting requirements of § 6050Y apply to reportable policy sales that occur after December 31, 2017, and reportable death benefits paid after December 31, 2017. For reportable policy sales and payments of reportable death benefits occurring after December 31, 2017, and before the date final regulations under § 6050Y are published in the Federal Register, Treasury and the IRS intend to allow additional time after the date final regulations are published to file the returns and furnish the written statements required by § 6050Y.

B. A Modification to the Transfer for Valuable Consideration Rules

Treasury and the IRS intend to propose amendments to § 1.101–1 to reflect the addition of § 101(a)(3) by section 13522 of the Act.