Rev. Rul. 2020-05

ISSUE

After the amendment of § 1016(a) of the Internal Revenue Code (Code) by section 13521 of Public Law No. 115-97, 131 Stat. 2054 (December 22, 2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA), what is the amount of A’s and B’s income recognized upon the sale of the life insurance contracts described in Situation 2 of Rev. Rul. 2009-13, 200921 I.R.B. 1029; Situation 3 of Rev. Rul. 2009-13; and Situation 2 of Rev. Rul. 2009-14, 2009-21 I.R.B. 1031?

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Sunita Lough, Deputy Commissioner for Services

and Enforcement.

LAW AND ANALYSIS

Sections 1011 and 1012 of the Code provide that the adjusted basis for determining gain or loss is generally the cost of property adjusted as provided in § 1016, except as otherwise provided in subchapters O (§§ 1011 through 1092), C (§§ 301 through 386), K (§§ 701 through 777), and P (§§ 1201 through 1298) of chapter 1 of the Code.

Section 1016(a) provides that proper adjustment must be made for expenditures, receipts, losses, or other items properly chargeable to capital account. Section 13521 of the TCJA amended § 1016(a) to provide that, in determining the basis of a life insurance contract or an annuity contract, no adjustment is made for mortality, expense, or other reasonable charges incurred under the contract. See § 1016(a) (1)(B). This amendment is effective for transactions entered into on or after August 26, 2009 (the effective date of Rev. Rul. 2009-13 with respect to Situations 2 and 3).