Td 9879

Part I
26 CFR 1.101-1; 26 CFR 1.6050Y-1;
26 CFR 1.6050Y-2; 26 CFR 1.6050Y-3;
26 CFR 1.6050Y-4

T.D. 9879
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Information Reporting for
Certain Life Insurance
Contract Transactions
and Modifications to the
Transfer for Valuable
Consideration Rules
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
6800$5< 7KLV GRFXPHQW FRQWDLQV ¿nal regulations providing guidance on
new information reporting obligations
under section 6050Y related to reportable
policy sales of life insurance contracts and
SD\PHQWVRIUHSRUWDEOHGHDWKEHQH¿WV7KH
¿QDOUHJXODWLRQVDOVRSURYLGHJXLGDQFHRQ
WKH DPRXQW RI GHDWK EHQH¿WV H[FOXGHG
from gross income under section 101 folORZLQJDUHSRUWDEOHSROLF\VDOH7KH¿QDO
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
EHQH¿WV
DATES: Effective Date: These regulations
are effective October 31, 2019.
Applicability Date: For dates of applicability, see §§1.101-6 and 1.6050Y-1(b).
FOR FURTHER INFORMATION CONTACT: Kathryn M. Sneade, (202) 3176995 (not a toll-free number).
SUPPLEMENTARY INFORMATION:

November 18, 2019

Background

TCJA and the regulations the Department
of the Treasury (Treasury Department)
This document contains amendments DQG WKH ,56 H[SHFWHG WR SURSRVH XQGHU
to 26 CFR part 1 under sections 101 and section 6050Y, requested comments on
6050Y of the Internal Revenue Code WKH GH¿QLWLRQ RI ³UHSRUWDEOH SROLF\ VDOH´
&RGH 7KHVH DPHQGPHQWV ¿QDO UHJX- set forth in section 101(a)(3)(B), among
lations) implement legislative changes RWKHU WKLQJV DQG LGHQWL¿HG WKH QHHG IRU
to sections 101 and 6050Y of the Code regulations providing guidance on the apby sections 13520 and 13522 of Pub. L. plication of section 101(a) following the
No. 115-97 (131 Stat. 2054, 2149, 2151), addition of section 101(a)(3) to the Code.
FRPPRQO\UHIHUUHGWRDVWKH7D[&XWVDQG The Treasury Department and the IRS re-REV $FW 7&-$ 7KH ¿QDO UHJXODWLRQV ceived comments in response to the notice
XQGHUVHFWLRQDPHQG¿QDOUHJXODWLRQV and considered these comments in develunder section 101 published in the Fed- oping the proposed regulations.
The Treasury Department and the IRS
eral Register on November 26, 1960 (25
FR 11402), as subsequently amended on published proposed regulations under secDecember 24, 1964 (29 FR 18356), Sep- tions 101 and 6050Y (REG-103083-18) in
tember 27, 1982 (47 FR 42337), and July the Federal Register (84 FR 11009) on
)5H[LVWLQJUHJXOD- March 25, 2019 (proposed regulations).
The Treasury Department and the IRS retions).
Section 13520 of the TCJA added ceived public comments on the proposed
section 6050Y to chapter 61 (Informa- regulations and held a public hearing on
tion and Returns) of subtitle F of the June 5, 2019.
After consideration of all of the comCode (chapter 61). Section 6050Y imposes information reporting obligations ments on the proposed regulations, the
related to certain life insurance contract proposed regulations are adopted as
transactions, including reportable policy amended by this Treasury decision.
sales and payments of reportable death
EHQH¿WV 6HFWLRQ < SURYLGHV WKDW Summary of Comments and
each of the returns required by section Explanation of Revisions
6050Y is to be made “at such time and
This section discusses the public comin such manner as the Secretary shall
SUHVFULEH´ 7KH ¿QDO UHJXODWLRQV XQGHU ments received on the proposed regulasection 6050Y implement section 6050Y WLRQV DQG H[SODLQV WKH UHYLVLRQV DGRSWHG
by specifying the manner in which and E\ WKH ¿QDO UHJXODWLRQV LQ UHVSRQVH WR
time at which the information reporting those comments.
REOLJDWLRQV PXVW EH VDWLV¿HG 7KH ¿QDO
UHJXODWLRQV DOVR SURYLGH GH¿QLWLRQV DQG 1. Comments and Changes Relating to
rules that govern the application of the Applicability Dates
information reporting obligations.
Section 13522 of the TCJA amended A. Applicability date for section 6050Y
section 101. New section 101(a)(3) de- regulations
¿QHVWKHWHUP³UHSRUWDEOHSROLF\VDOH´DQG
provides rules for determining the amount
Section 1.6050Y-1 of the proposed
RIGHDWKEHQH¿WVH[FOXGHGIURPJURVVLQ- regulations provides that the rules in
come following a reportable policy sale. §1.6050Y-1 through 1.6050Y-4 of the
7KH ¿QDO UHJXODWLRQV XQGHU VHFWLRQ  proposed regulations apply to reportable
SURYLGH GH¿QLWLRQV DSSOLFDEOH XQGHU VHF- policy sales made and reportable death
tions 101 and 6050Y and guidance for EHQH¿WV SDLG DIWHU 'HFHPEHU  
GHWHUPLQLQJWKHDPRXQWRIGHDWKEHQH¿WV and provides transition relief with respect
H[FOXGHG IURP JURVV LQFRPH IROORZLQJ D to reporting required on reportable policy
sales and payments of reportable death
reportable policy sale.
Notice 2018-41, 2018-20 I.R.B. 584, EHQH¿WV RFFXUULQJ DIWHU 'HFHPEHU 
described sections 13520 and 13522 of the DQGEHIRUHWKHGDWH¿QDOUHJXODWLRQV

1052

Bulletin No. 2019–47

under section 6050Y are published in the
Federal Register.
One commenter recommended that reporting obligations under section 6050Y
(as well as application of the rules under
section 101 relating to section 6050Y) be
GHOD\HGXQWLOGD\VDIWHUWKHGDWHWKH¿nal regulations are published in the Federal Register. Informal comments also
were received requesting transition relief
(such as delayed reporting) or permanent
relief with respect to the reporting obligations under section 6050Y for reportable
policy sales and payments of reportable
GHDWK EHQH¿WV RFFXUULQJ DIWHU 'HFHPEHU
31, 2017, and before January 1, 2019
(such as waiving the reporting obligations
for this period). One commenter requested that at least an additional 30 days be
added to the 90-day relief period provided
in §1.6050Y-1(b)(2) and (3) of the proSRVHG UHJXODWLRQV IRU ¿OLQJ UHWXUQV DQG
furnishing statements required under section 6050Y(b) and (c) and §1.6050Y-3 and
1.6050Y-4 of the proposed regulations, to
give issuers at least 60 days to complete
WKHLU UHSRUWLQJ DIWHU WKH GD\ H[WHQsion period provided to acquirers of an
interest in a life insurance contract under
§1.6050Y-1(b)(1) of the proposed regulations. The commenter asserted that issuers
UHTXLUH VLJQL¿FDQWO\ PRUH WLPH WKDQ WKH
30 days effectively provided to complete
Forms 1099-SB, “Seller’s Investment in
Life Insurance Contract,” and 1099-R
“Distributions From Pensions, Annuities,
5HWLUHPHQWRU3UR¿W6KDULQJ3ODQV,5$V
Insurance Contracts, etc.”, and to add new
forms (such as Form 1099-SB) to their
systems. The commenter stated that issuers must identify policies that are subject
to reporting once the Forms 1099-LS,
“Reportable Life Insurance Sale,” are received as well as enhance systems to track
these policies over their life and transmit
data between various systems in order to
accurately report under sections 6050Y(b)
and (c).
In response to these comments, and to
give acquirers and issuers ample time to
develop and implement reporting systems,
WKH¿QDOUHJXODWLRQVSURYLGHWKDWWKHUXOHV
in §§1.6050Y-1 through 1.6050Y-4 of the
¿QDO UHJXODWLRQV DSSO\ WR UHSRUWDEOH SROicy sales made and reportable death benH¿WV SDLG DIWHU 'HFHPEHU   See
†<E RI WKH ¿QDO UHJXODWLRQV

Bulletin No. 2019–47

As a result, no reporting is required under
section 6050Y for reportable policy sales
PDGH DQG UHSRUWDEOH GHDWK EHQH¿WV SDLG
after December 31, 2017, and before January 1, 2019.
6HFWLRQ <D RI WKH ¿QDO
UHJXODWLRQVGH¿QHV³UHSRUWDEOHGHDWKEHQH¿WV´ DV ³DPRXQWV SDLG E\ UHDVRQ RI WKH
death of the insured under a life insurance
contract that are attributable to an interest
in the contract that was transferred in a
reportable policy sale.” Accordingly, beFDXVHWKHGH¿QLWLRQRI³UHSRUWDEOHSROLF\
VDOH´XQGHU†<DRIWKH¿QDO
regulations applies only to transfers of
interests in life insurance contracts made
after December 31, 2018, death bene¿WV DUH ³UHSRUWDEOH GHDWK EHQH¿WV´ XQGHU
†<DRIWKH¿QDOUHJXODWLRQV
and are subject to the reporting requirePHQWV RI †< RI WKH ¿QDO UHJXODWLRQVRQO\LIWKHGHDWKEHQH¿WVDUHSDLGE\
reason of the death of the insured under
a life insurance contract transferred after
December 31, 2018, in a reportable policy
sale.
7KH¿QDOUHJXODWLRQVDOVRSURYLGHWUDQsition relief as set forth in the proposed
UHJXODWLRQVZLWKWZRPRGL¿FDWLRQV)LUVW
the transition relief applies with respect to
reportable policy sales made and reportDEOH GHDWK EHQH¿WV SDLG DIWHU 'HFHPEHU
31, 2018, and on or before October 31,
2019. Second, as requested by one of the
commenters, §1.6050Y-1(b)(3), (4), and
 RI WKH ¿QDO UHJXODWLRQV SURYLGH LVVXHUV ZLWK DW OHDVW  GD\V DIWHU WKH ¿QDO
regulations are published in the Federal
Register WR¿OHUHWXUQVDQGIXUQLVKVWDWHments under section 6050Y(b) and (c) and
††< DQG < RI WKH ¿QDO
UHJXODWLRQV 7KHVH IHDWXUHV RI WKH ¿QDO
regulations are intended to give acquirers
and issuers ample time to develop and implement reporting systems.
Noting that 250 or more information
UHWXUQVRIDVLQJOHWD[SD\HUPXVWEH¿OHG
electronically, one commenter requested
ZDLYHUV IURP HOHFWURQLF ¿OLQJ IRU 
and 2019 issuer reporting under section
6050Y(b) and (c). The Treasury Department and the IRS have determined not to
SURYLGH WKH UHTXHVWHG ZDLYHU LQ WKH ¿QDO
regulations under section 6050Y because
SURFHGXUHV DOUHDG\ H[LVW IRU DQ\ SHUVRQ
UHTXLUHGWR¿OHRUPRUHUHWXUQVGXULQJ
the calendar year to request a waiver from

1053

WKH UHTXLUHPHQW WR ¿OH HOHFWURQLFDOO\ E\
showing hardship. See §301.6011-2(c).
B. Applicability date for section 101
regulations
Section 1.101-6(b) of the proposed
regulations provides that, 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,
DQGWRUHSRUWDEOHGHDWKEHQH¿WVSDLGDIWHU
December 31, 2017. Section 1.101-6(b) of
the proposed regulations further provides
that, for any other purpose, §1.101-1(b),
(c), (d), (e), (f), and (g) apply to transfers
of life insurance contracts, or interests
therein, made after the date the Treasury
decision adopting the proposed regulaWLRQV DV ¿QDO UHJXODWLRQV LV SXEOLVKHG LQ
the Federal Register.
Several commenters requested clari¿FDWLRQ UHJDUGLQJ WKH DSSOLFDELOLW\ GDWHV
set forth in §1.101-6(b) of the proposed
regulations. Two of these commenters requested that the Treasury Department and
the IRS clarify that the rules issued with
respect to section 101(a)(3) apply to all
transfers of life insurance contracts, or interests therein, made after December 31,
2017, or alternatively, that the Treasury
'HSDUWPHQW DQG WKH ,56 DOORZ WD[SD\HUV
to rely upon the rules in §1.101-1 of the
proposed regulations for transactions undertaken after December 31, 2017, and before the date that the Treasury Department
DGRSWV ¿QDO UXOHV $QRWKHU FRPPHQWHU
recommended that application of the rules
under section 101 (as well as the reporting
obligations under section 6050Y) be deOD\HGXQWLOGD\VDIWHUWKHGDWHWKH¿QDO
regulations are published in the Federal
Register, but suggested that language
should be included in the preamble to the
¿QDOUHJXODWLRQVWRSURYLGHWKDWWD[SD\HUV
may rely on the proposed regulations for
the period prior to the effective date of the
¿QDOUHJXODWLRQV
%HFDXVH WKH ¿QDO UHJXODWLRQV SURYLGH
that the reporting obligations under section 6050Y apply to reportable policy
sales and payments of reportable death
EHQH¿WV RFFXUULQJ DIWHU 'HFHPEHU 
2018, for purposes of determining whether a transfer of an interest in a life insurance contract is a reportable policy sale or
DSD\PHQWRIGHDWKEHQH¿WVLVDSD\PHQW

November 18, 2019

RIUHSRUWDEOHGHDWKEHQH¿WVVXEMHFWWRWKH
reporting requirements of section 6050Y
and §§1.6050Y-1 through 1.6050Y-4 of
WKH ¿QDO UHJXODWLRQV WKH GH¿QLWLRQV DQG
rules set forth in §1.101-1(b) through (g)
RI WKH ¿QDO UHJXODWLRQV DSSO\ WR UHSRUWable policy sales made after December 31,
DQGWRUHSRUWDEOHGHDWKEHQH¿WVSDLG
after December 31, 2018. See §§1.101E DQG <E RI WKH ¿QDO UHJXlations.
7KH ¿QDO UHJXODWLRQV SURYLGH WKDW IRU
RWKHU SXUSRVHV VSHFL¿FDOO\ IRU SXUSRVHV
of determining the amount of the proceeds of life insurance contracts payable
E\ UHDVRQ RI GHDWK H[FOXGHG IURP JURVV
income under section 101, §1.101-1(b)
WKURXJKJRIWKH¿QDOUHJXODWLRQVDSSO\
to amounts paid by reason of the death
of the insured under a life insurance contract, or interest therein, transferred after
October 31, 2019. However, under section
EDWD[SD\HUPD\DSSO\WKHUXOHV
set forth in §1.101-1(b) through (g) of the
¿QDOUHJXODWLRQVLQWKHLUHQWLUHW\ZLWKUHspect to all amounts paid by reason of the
death of the insured under a life insurance
contract, or interest therein, transferred after December 31, 2017, and on or before
October 31, 2019.

cer (“certain persons”). See section 101(a)
% 7KH RWKHU H[FHSWLRQ WKH ³FDUU\RYHUEDVLVH[FHSWLRQ´DSSOLHVLIWKHWUDQVferee’s basis for determining gain or loss
in the life insurance contract or interest
therein is determined in whole or in part
by reference to the transferor’s basis in
the contract or interest therein. See section
101(a)(2)(A). Under section 101(a)(3),
which was added by section 13522 of the
7&-$ QHLWKHU RI WKHVH H[FHSWLRQV WR WKH
transfer for value rule applies in the case
of a transfer of a life insurance contract,
or any interest therein, that is a reportable
policy sale.
Section 1.101-1(b)(1)(i) of the proposed regulations provides the general
transfer for value rule set forth in section
101(a)(2). Section 1.101-1(b)(1)(ii) of the
SURSRVHGUHJXODWLRQVVHWVIRUWKWKHH[FHStions from this general rule for transfers
for valuable consideration that are not reportable policy sales (the certain person
H[FHSWLRQ DQG FDUU\RYHU EDVLV H[FHSWLRQ
provided in section 101(a)(2)). Section
1.101-1(b)(2) of the proposed regulations
provides rules regarding gratuitous transfers of interests in life insurance contracts,
as well as transfers of only a part of an
interest in a life insurance contract and
bargain sales of an interest in a life insur2. Comments and Changes Relating to
ance contract (that is, transfers that are in
§1.101-1(b) of the Proposed Regulations
part gratuitous and in part transfers for
valuable consideration). This section of
Generally, amounts received under a WKLV 6XPPDU\ RI &RPPHQWV DQG ([SODlife insurance contract that are paid by rea- nation of Revisions discusses comments
VRQRIWKHGHDWKRIWKHLQVXUHGDUHH[FOXGHG received on §1.101-1(b) of the proposed
IURPJURVVLQFRPHIRU)HGHUDOLQFRPHWD[ regulations.
purposes under section 101(a)(1). However, if a life insurance contract or interest A. Transfers to certain persons
therein is sold or otherwise transferred
for valuable consideration, the “transfer
One commenter on the proposed regfor value rule” set forth in section 101(a) ulations described a life insurance policy
 OLPLWV WKH H[FOXGDEOH SRUWLRQ RI WKH subject to the section 101(a)(2) transfer
amount received by reason of the death of for value rule as “tainted,” in that death
the insured to the sum of the consideration EHQH¿WVSDLGXQGHUWKHSROLF\DUHQRORQpaid for the contract or interest therein and JHUIXOO\H[FOXGHGIURPLQFRPHXQGHUVHFany premiums and other amounts subse- tion 101(a)(1). The commenter asked that
quently paid by the transferee with respect WKH ¿QDO UHJXODWLRQV SURYLGH IRU UHPRYDO
to the contract or interest therein. Section of the “taint” by a transfer to the insured,
D$DQG%SURYLGHWZRH[FHS- as was permitted before the TCJA, and
tions to this transfer for value rule. One DVNHG IRU FODUL¿FDWLRQ UHJDUGLQJ ZKHWKHU
H[FHSWLRQWKH³FHUWDLQSHUVRQH[FHSWLRQ´ a transfer of a policy to the insured must
applies to transfers to the insured, a part- be a sale for fair market value to remove
ner of the insured, a partnership in which the “taint” of a transfer for valuable conthe insured is a partner, or a corporation in sideration. The commenter suggested that
ZKLFKWKHLQVXUHGLVDVKDUHKROGHURURI¿- mistakes happen, including the mistake of

November 18, 2019

1054

QRWVHHNLQJWD[DGYLFHIURPDSURIHVVLRQDO
who knows the section 101 rules, and that
WD[SD\HUV VKRXOG EH DEOH WR WDNH FRUUHFtive measures to remove this “taint.” The
commenter noted that the insured may no
longer have a business or other need for
the current transferee to own the policy
and may wish to hold the policy to protect the insured’s family, or the insured
may regret selling the policy and wish to
buy the policy back after the policy was
transferred in a reportable policy sale. The
commenter pointed out that §1.101-1(b)
LLRIWKHH[LVWLQJUHJXODWLRQVQRW\HW
UHYLVHGWRUHÀHFW7&-$FKDQJHVWRVHFWLRQ
101) currently provides such a corrective
measure, allowing the “taint” to be removed by a transfer of the policy to certain persons. However, §1.101-1(b)(1)(ii)
(B)(2) of the proposed regulations makes
this corrective measure unavailable to the
H[WHQW WKDW WKH WUDQVIHU WR WKRVH FHUWDLQ
persons was preceded by a transfer of the
policy for valuable consideration in a reportable policy sale. The commenter also
QRWHGWKDW†ELLRIWKHH[LVWing regulations does not require the corrective transfer to be a sale for fair market
value, and that §1.101-1(b)(1)(ii)(B)(1)
of the proposed regulations does not impose such a requirement. The commenter
suggested that Example 1, Example 2, and
Example 3 in §1.101-1(g)(1), (2), and (3)
of the proposed regulations, read together,
however, appear to require that the transfer to the insured be a sale for fair market
value to clear the “taint” of a prior transfer
for valuable consideration. The commentHUDVNHGIRUFODUL¿FDWLRQRQWKLVSRLQW7KH
commenter suggested that the transfer to
the insured be available as a corrective
measure even if that transfer was preceded by a reportable policy sale, and, to prevent any possible abuse, that the insured
be required to pay fair market value if the
policy previously had been transferred in
a reportable policy sale.
Section 1.101-1(b)(1)(ii)(B)(1) of the
SURSRVHG UHJXODWLRQV GRHV QRW H[SOLFLWO\
require that the valuable consideration
for a transfer of an interest in a life insurance contract be equal to the interest’s
fair market value, but, in the case of a
bargain sale, the rules implementing the
provisions of section 101 are applied separately to the sale and gift portions of the
transferred interest. Under §1.101-1(b)

Bulletin No. 2019–47

(2)(iii) of the proposed regulations, part
of the transfer in a bargain sale is treated
as a gratuitous transfer subject to §1.1011(b)(2)(i) of the proposed regulations.
Example 1, Example 2, and Example 3
in §1.101-1(g)(1), (2), and (3) of the proposed regulations are intended to illustrate the application of the rules implementing the changes made by the TCJA.
For the sake of simplicity, the considerDWLRQLQWKHVHH[DPSOHVHTXDOVIDLUPDUket value, so the bargain sale rules do not
DSSO\ 7KH ¿QDO UHJXODWLRQV LQFOXGH DQ
H[DPSOHWKDWLOOXVWUDWHVWKHDSSOLFDWLRQRI
the bargain sale rules. See Example 7 in
†JRIWKH¿QDOUHJXODWLRQV
In response to the comments received,
WKH ¿QDO UHJXODWLRQV SURYLGH IRU D IUHVK
start with respect to an interest gratuitously transferred to the insured, provided the interest has not previously been
transferred for value in a reportable policy sale. See†ELRIWKH¿QDO
regulations. Example 2 in §1.101-1(g)
 RI WKH ¿QDO UHJXODWLRQV LOOXVWUDWHV WKH
DSSOLFDWLRQ RI WKLV UXOH7KH ¿QDO UHJXODtions also provide for a fresh start with
respect to an interest (or portion thereof)
that is transferred to the insured following
a reportable policy sale of the interest for
YDOXDEOHFRQVLGHUDWLRQEXWRQO\WRWKHH[tent that the insured pays fair market value for the interest and only with respect
to the interest (or relevant portion thereof) transferred to the insured that is not
subsequently transferred in a transfer for
valuable consideration or in a reportable
policy sale. See §1.101-1(b)(1)(ii)(B)(3)
RIWKH¿QDOUHJXODWLRQV7KHDSSOLFDWLRQRI
this rule is illustrated in revised Example
6, new Example 7, new Example 8, and
new Example 9 in §1.101-1(g)(6), (g)(7),
JDQGJRIWKH¿QDOUHJXODWLRQV
B. Gratuitous transfers
Under §1.101-1(b)(2)(i) of the proposed regulations, the amount of the pol-

icy proceeds attributable to a gratuitously
transferred interest in a life insurance polLF\WKDWLVH[FOXGDEOHIURPJURVVLQFRPH
under section 101(a)(1) is limited to the
sum of the amount attributable to the gratuitously transferred interest that would
KDYHEHHQH[FOXGDEOHE\WKHWUDQVIHURULI
the transfer had not occurred, and the premiums and other amounts subsequently
paid by the transferee with respect to the
LQWHUHVW 8QOLNH WKH H[LVWLQJ UHJXODWLRQV
the proposed regulations do not provide a
special rule for a gratuitous transfer made
by or to certain persons.1$VH[SODLQHGLQ
the preamble to the proposed regulations,
such a rule is not required by section
101(a), and a special rule for these transfers could be subject to abuse. See 84 FR
11009, 11017.
Section 1.101-1(b)(2)(i) of the proposed regulations applies to any gratuitous
transfer of an interest in a life insurance
contract, “including a reportable policy sale that is not for valuable consideration.” One commenter requested that this
language be deleted, asserting that includLQJJUDWXLWRXVWUDQVIHUVZLWKLQWKHGH¿QLtion of reportable policy sales is not consistent with section 101.2 The commenter
noted that the title of section 101(a)(3) is
³([FHSWLRQWRYDOXDEOHFRQVLGHUDWLRQUXOHV
for commercial transactions,” which the
commenter asserted makes clear that a reportable policy sale can occur only if there
has been a transfer for valuable consideration. The commenter further asserted that
the provisions of section 101(a)(3)(A)
and (B) limit the relevance of reportable
policy sales to those situations in which
D WD[SD\HU QHHGV WR GHWHUPLQH ZKHWKHU
RQH RI WKH VHFWLRQ D H[FHSWLRQV
DSSOLHVDQGEHFDXVHWKRVHH[FHSWLRQVDUH
never relevant for gratuitous transfers, reportable policy sales are never relevant for
gratuitous transfers.
The TCJA added section 101(a)(3)(A)
WR SURYLGH WKDW WKH WZR SUHH[LVWLQJ H[ceptions to the transfer for value rules no

longer apply if the transfer is a reportable
SROLF\VDOH6HFWLRQD%GH¿QHV
a reportable policy sale as any acquisition of an interest in a life insurance
contract in the absence of the described
relationship between the acquirer and inVXUHG$OWKRXJKWKHDYDLODELOLW\RIH[FHStions from the transfer for value rules is
not directly relevant to a gratuitous transfer standing alone, the acquisition of an
interest in a contract by an acquirer that
does not have the described relationship
with the insured, including a gratuitous
WUDQVIHU PD\ DIIHFW WKH H[FOXVLRQ RI WKH
policy proceeds from gross income under
section 101(a) and the regulations thereunder if there are subsequent transfers.
Consistent with the statutory language,
WKHGH¿QLWLRQRIDUHSRUWDEOHSROLF\VDOH
LQWKH¿QDOUHJXODWLRQVGRHVQRWH[FOXGH
gratuitous transfers.
3. Comments and Changes Relating
to §1.101-1(c) of the Proposed
Regulations
Under section 101(a)(3)(B) and
§1.101-1(c)(1) of the proposed regulations, a reportable policy sale is, as a
general matter, 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,
EXVLQHVVRU¿QDQFLDOUHODWLRQVKLSZLWKWKH
insured apart from the acquirer’s interest
LQWKHOLIHLQVXUDQFHFRQWUDFW([FHSWLRQV
WRWKHGH¿QLWLRQRIUHSRUWDEOHSROLF\VDOH
for transfers between certain related entities are provided in §1.101-1(c)(2)(i) and
(ii) of the proposed regulations. Section
1.101-1(c)(2)(iii) of the proposed regulaWLRQVVHWVIRUWKH[FHSWLRQVIURPWKHGH¿QLtion of reportable policy sales for certain
indirect acquisitions. This section of this
6XPPDU\ RI &RPPHQWV DQG ([SODQDWLRQ
of Revisions discusses comments received
on §1.101-1(c) of the proposed regulations.

8QGHU†ERIWKHH[LVWLQJUHJXODWLRQVLQWKHFDVHRIDJUDWXLWRXVWUDQVIHUE\DVVLJQPHQWRURWKHUZLVHRIDOLIHLQVXUDQFHSROLF\RUDQ\LQWHUHVWWKHUHLQWKHDPRXQWRIWKHSURFHHGV
DWWULEXWDEOHWRVXFKSROLF\RULQWHUHVWWKDWLVH[FOXGDEOHIURPWKHWUDQVIHUHH¶VJURVVLQFRPHXQGHUVHFWLRQDLVDVDJHQHUDOUXOHOLPLWHGWRWKHVXPRIWKHDPRXQWZKLFKZRXOGKDYHEHHQ
H[FOXGDEOHE\WKHWUDQVIHURULIQRVXFKWUDQVIHUKDGWDNHQSODFHDQGDQ\SUHPLXPVDQGRWKHUDPRXQWVVXEVHTXHQWO\SDLGE\WKHWUDQVIHUHHZLWKUHVSHFWWRWKHLQWHUHVW+RZHYHULIWKHJUDWXLWRXV
WUDQVIHULQTXHVWLRQLVPDGHE\RUWRWKHLQVXUHGDSDUWQHURIWKHLQVXUHGDSDUWQHUVKLSLQZKLFKWKHLQVXUHGLVDSDUWQHURUDFRUSRUDWLRQLQZKLFKWKHLQVXUHGLVDVKDUHKROGHURURI¿FHUWKH
HQWLUHDPRXQWRIWKHSURFHHGVDWWULEXWDEOHWRWKHSROLF\RULQWHUHVWWUDQVIHUUHGLVH[FOXGDEOHIURPWKHWUDQVIHUHH¶VJURVVLQFRPH
2
The commenter also asserted that this language creates unnecessary and confusing reporting requirements under section 6050Y for gift transfers and is inconsistent with the statutory language, which, according to the commenter, indicates that a reportable policy sale must be a transfer for value. The commenter’s concerns about reporting are discussed in section 10.A of this
6XPPDU\RI&RPPHQWVDQG([SODQDWLRQRI5HYLVLRQV
1

Bulletin No. 2019–47

1055

November 18, 2019

A. Pre-TCJA acquisitions
Two commenters on the proposed regXODWLRQVUHTXHVWHGFODUL¿FDWLRQUHJDUGLQJ
the application of §1.101-1(c)(2)(iii)(A)
with respect to the indirect acquisition
of an interest in a life insurance contract
if the entity that directly holds the interest acquired the interest before January
  WKDW LV EHIRUH WKH H[LVWHQFH RI
any reporting requirements under section 6050Y(a)). Both commenters recRPPHQGHG WKDW DQ H[FHSWLRQ IURP WKH
GH¿QLWLRQ RI UHSRUWDEOH SROLF\ VDOH EH
provided with respect to the indirect acquisition of an interest in a life insurance
contract by a person if the partnership,
trust, or other entity that directly holds
the interest in the life insurance contract
acquired the interest before January 1,
2018. One commenter recommended
WKDW LI WKH UHTXHVWHG H[FHSWLRQ LV QRW
provided, the partnership, trust, or other
entity in which the investment interest
is purchased should be permitted to undertake the applicable reporting, instead
of requiring the investor to navigate the
FRPSOH[LWLHV RI WKH UHSRUWLQJ UHTXLUHments. This commenter also suggested
WKDWLIWKHUHTXHVWHGH[FHSWLRQLVSURYLGed, the partnership, trust, or other entity
FRXOG¿OHDQLQIRUPDWLRQUHWXUQZLWKWKH
IRS for its portfolio of policies acquired
prior to January 1, 2018, as a transition
solution. However, the other commenter suggested that the partnership, trust,
or other entity may not have tracked or
UHWDLQHGLQIRUPDWLRQVXI¿FLHQWWRVDWLVI\
the reporting requirements under section
6050Y with respect to interests acquired
before January 1, 2018.
In response to these comments, §1.101FLLL$RIWKH¿QDOUHJXODWLRQVSURYLGHVDQH[FHSWLRQIURPWKHGH¿QLWLRQRI
reportable policy sale with respect to the
indirect acquisition of an interest in a life
insurance contract by a person if a partnership, trust, or other entity in which an
ownership interest is being acquired directly or indirectly holds the interest in
the life insurance contract and acquired
that interest before January 1, 2019, or acquired that interest in a reportable policy

sale reported in compliance with section
6050Y(a) and §1.6050Y-2.3
B. Additional requests for expanded
indirect acquisition exceptions
One commenter on the proposed regXODWLRQVLGHQWL¿HGWKHH[LVWHQFHRIDSRVsible technical issue with §1.101-1(c)
(2)(iii)(A) of the proposed regulations,
ZKLFKSURYLGHVDQH[FHSWLRQIURPUHSRUWable policy sale status for certain indirect
acquisitions. The commenter noted that,
under this provision, the indirect acquisition of an interest in a life insurance
contract is not a reportable policy sale if
the partnership, trust, or other entity that
directly holds the interest in the life insurance contract acquired the interest in
a reportable policy sale that was reported
in compliance with section 6050Y(a) and
the regulations thereunder. The commenter described a fact pattern in which legal
title to a life insurance contract is held
E\ D QRPLQHH IRU H[DPSOH D VHFXULWLHV
intermediary) on behalf of a partnership,
WUXVWRURWKHUHQWLW\IRUH[DPSOHDQLQvestment fund). The commenter concludHGWKDWLQWKLVIDFWSDWWHUQWKHH[FHSWLRQ
in §1.101-1(c)(2)(iii)(A) of the proposed
regulations cannot apply to an investor in
the partnership, trust, or other entity because the investor’s ownership interest
is in the partnership, trust, or other entity (which does not hold a direct interest
in the life insurance contract), not in the
nominee (which directly holds the legal
interest in the life insurance contract).
The commenter also recommended that
§1.101-1(c)(2)(iii)(A) be revised to clariI\ WKDW WKH H[FHSWLRQ DSSOLHV LI UHSRUWLQJ
under section 6050Y is done by either the
legal owner of the life insurance contract
(such as a securities intermediary holding
OHJDOWLWOHDVDQRPLQHHRUWKHEHQH¿FLDO
owner of the life insurance policy that
controls the life insurance contract under
a securities account agreement (such as an
investment fund).
In the fact pattern described in the
comment letter, the partnership, trust, or
other entity in which the investor acquires
an ownership interest holds an interest in

the life insurance contract. An interest in a
life insurance contract is not limited to legal ownership of the contract. Instead, any
person that acquires an enforceable right
to receive all or a part of the proceeds of
the life insurance contract or acquires the
ULJKWWRDQ\RWKHUHFRQRPLFEHQH¿WVRIWKH
policy as described in §20.2042-1(c)(2)
acquires an interest in the life insurance
contract under §1.101-1(e)(1) of the proposed regulations.
The partnership, trust, or other entity
described by the commenter presumably
would hold such an interest directly, even
though legal title to the life insurance
contract is held by a nominee or other
intermediary. By acquiring an interest in
the partnership, trust, or other entity, the
LQYHVWRULQGLUHFWO\ZRXOGDFTXLUHDEHQH¿cial interest in the life insurance contract.
7KHH[FHSWLRQLQ†FLLL$RI
the proposed regulations would apply to
this indirect acquisition if the partnership,
trust, or other entity reported its acquisiWLRQ RI WKH EHQH¿FLDO LQWHUHVW LQ WKH FRQtract in compliance with section 6050Y(a).
The commenter’s recommended revision
to §1.101-1(c)(2)(iii)(A) of the proposed
regulations therefore is not adopted in the
¿QDOUHJXODWLRQV
The commenter also proposed that
§1.101-1(c)(2)(iii)(A) of the proposed
UHJXODWLRQV EH PRGL¿HG WR DSSO\ LI ³WKH
partnership, trust, or other entity that directly or indirectly 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.” This change is adopted
LQWKH¿QDOUHJXODWLRQVZKLFKDOVRFODULI\
that the partnership, trust, or other entity
must be a partnership, trust, or other entity
in which an ownership interest is being acTXLUHG$VPRGL¿HGWKHH[FHSWLRQDSSOLHV
to the indirect acquisition of an interest in a
life insurance contract by a person acquiring an ownership interest in a partnership,
trust, or other entity that holds the interest
in the life insurance contract, regardless of
whether the person’s ownership interest in
the partnership, trust, or other entity that
reported its acquisition of the interest in
the life insurance contract is direct or in-

$VGLVFXVVHGLQVHFWLRQ$RIWKLV6XPPDU\RI&RPPHQWVDQG([SODQDWLRQRI5HYLVLRQVWKH¿QDOUHJXODWLRQVSURYLGHWKDWWKHUHSRUWLQJREOLJDWLRQVXQGHUVHFWLRQ<DSSO\WRUHSRUWDEOHSROLF\VDOHVDQGSD\PHQWVRIUHSRUWDEOHGHDWKEHQH¿WVRFFXUULQJDIWHU'HFHPEHUSee†<ERIWKH¿QDOUHJXODWLRQV6HFWLRQ%RIWKLV6XPPDU\RI&RPPHQWVDQG
([SODQDWLRQRI5HYLVLRQVGHVFULEHVFKDQJHVDGRSWHGLQ†FLLL$RIWKH¿QDOUHJXODWLRQVLQUHVSRQVHWRRWKHUFRPPHQWVUHTXHVWLQJH[SDQGHGLQGLUHFWDFTXLVLWLRQH[FHSWLRQV

3

November 18, 2019

1056

Bulletin No. 2019–47

direct and regardless of whether that partnership, trust, or other entity acquired its
interest in a direct or indirect acquisition,
provided the partnership, trust, or other
entity acquired its interest in a reportable
policy sale reported in compliance with
section 6050Y(a) and §1.6050Y-2 or, as
discussed in section 3.A of this Summary
RI &RPPHQWV DQG ([SODQDWLRQ DFTXLUHG
its interest before January 1, 2019.
One commenter on the proposed regulations reiterated its previous request,
made in comments on Notice 2018-41,
WKDW DQ H[FHSWLRQ IURP WKH UHSRUWLQJ UHquirements of section 6050Y be provided
with respect to an indirect acquisition of
an interest in a life insurance contract by
any investor that acquires a 5 percent or
less economic and voting interest in an
investment vehicle that holds, directly or
indirectly, life insurance policies, with the
added proviso that the investor must not
EHDQRI¿FHURUGLUHFWRURIWKHLQYHVWPHQW
vehicle. Section 1.101-1(c)(2)(iii)(B) of
the proposed regulations provides that the
indirect acquisition of an interest in a life
insurance contract is not a reportable policy sale if the acquirer and his or her family
members own, in the aggregate, 5 percent
or less of the partnership, trust, or other
entity that directly holds the interest in the
OLIHLQVXUDQFHFRQWUDFWEXWWKLVH[FHSWLRQ
applies only if, immediately before the
acquisition, no more than 50 percent of
the gross value of the assets of the partnership, trust, or other entity that directly
holds the interest in the life insurance contract consists of life insurance contracts.
7KH ¿QDO UHJXODWLRQVGR QRW DGRSW WKH
proposed change because, if more than
50 percent of an entity’s asset value is life
insurance contracts, investment in life insurance contracts is likely the entity’s primary business activity, and it is reasonable
WRH[SHFWHYHQVPDOOLQYHVWRUVWREHDEOH
to determine the primary activity of the
business they are investing in, regardless
RIZKHWKHUWKH\DUHDOVRRI¿FHUVRUGLUHFtors of the entity. In addition, any investor
WKDWGRHVQRWTXDOLI\IRUWKHH[FHSWLRQVHW
IRUWKLQ†FLLL%RIWKH¿QDO
regulations because more than 50 percent
of the gross value of the assets of the partnership, trust, or other entity that directly
holds the interest in the life insurance contract consists of life insurance contracts
PD\ VWLOO TXDOLI\ IRU WKH H[FHSWLRQ VHW

Bulletin No. 2019–47

IRUWKLQ†FLLL$RIWKH¿QDO
regulations if a partnership, trust, or other
entity that directly or indirectly holds the
interest in the life insurance contract acquired the interest before January 1, 2019,
or acquired that interest in a reportable
policy sale reported in compliance with
section 6050Y(a) and §1.6050Y-2.
Separately, §1.101-1(c)(2)(iii)(B) of
WKH ¿QDO UHJXODWLRQV FODUL¿HV WKDW LI WKH
partnership, trust, or other entity in which
the acquirer is directly acquiring an ownership interest indirectly holds an interest
in one or more life insurance contracts, (i)
the assets of the partnership, trust, or other entity in which the ownership interest
is being acquired are tested to determine
whether more than 50 percent of the gross
value of the assets of that partnership,
trust, or other entity consists of life insurance contracts, and (ii) the ownership
interest in that partnership, trust, or other entity held by the acquirer and his or
her family members after the acquisition
is tested to determine whether they hold
more than a 5 percent ownership interest
in the entity. The assets of the partnership,
trust, or other entity that directly holds the
interest in the life insurance contract and
the interest in that partnership, trust, or
other entity held by the acquirer and his or
her family member are tested only if the
acquirer is directly acquiring an ownership interest in that partnership, trust, or
other entity.

law purposes, and the interest held by any
person that has an enforceable right to receive all or a part of the proceeds of the
life insurance contract or to any other ecoQRPLFEHQH¿WVRIWKHSROLF\DVGHVFULEHG
in §20.2042-1(c)(2). Section 1.101-1(e)
(2) of the proposed regulations provides
that 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,
SRVVHVVLRQRIRUOHJDORUEHQH¿FLDORZQership of the life insurance contract itself.
Under §1.101-1(e)(3) of the proposed regulations, the acquisition of an interest in
a life insurance contract may be direct or
indirect, as described in §1.101-1(e)(3)(i)
GH¿QLQJ³GLUHFWDFTXLVLWLRQRIDQLQWHUHVW
in a life insurance contract”) and (ii) (de¿QLQJ ³LQGLUHFW DFTXLVLWLRQ RI DQ LQWHUHVW
in a life insurance contract”).
One commenter on the proposed regulations suggested that, in a life settlement
transaction in which a securities intermediary holds legal title to the acquired
life insurance contract as nominee for the
QHZEHQH¿FLDORZQHURIWKHOLIHLQVXUDQFH
contract pursuant to a securities account
DJUHHPHQWWKHQHZEHQH¿FLDORZQHUGRHV
not acquire an interest in the life insurance
contract under §1.101-1(e)(3) of the proposed regulations, even though the new
EHQH¿FLDO RZQHU FRQWUROV DQG HQMR\V DOO
RIWKHEHQH¿WVRIWKHOLIHLQVXUDQFHSROLF\
EHFDXVHWKHQHZEHQH¿FLDORZQHUQHLWKHU
acquires legal title to the life insurance
4. Comments and Changes Relating to
policy nor holds an ownership interest in
§1.101-1(e) of the Proposed Regulations
the securities intermediary holding legal
title. However, under the proposed reguSection 1.101-1(e) of the proposed ODWLRQVWKHQHZEHQH¿FLDORZQHUDFTXLUHV
UHJXODWLRQV GH¿QHV WKH WHUPV XVHG WR GH- an interest in the life insurance contract
termine whether there has been an ac- because it acquires control of all of the
quisition of an interest in a life insurance EHQH¿WV RI WKH OLIH LQVXUDQFH SROLF\$Q\
contract. This section of this Summary of person that acquires an enforceable right to
&RPPHQWV DQG ([SODQDWLRQ RI 5HYLVLRQV receive all or a part of the proceeds of the
discusses comments that generally relate life insurance contract or to any other ecoWR WKH GH¿QLWLRQV LQ †H RI WKH QRPLFEHQH¿WVRIWKHSROLF\DVGHVFULEHG
proposed regulations.
in §20.2042-1(c)(2) acquires an interest in
the life insurance contract under §1.101A. Interest in a life insurance contract
1(e)(1) of the proposed regulations. In the
situation described in the comment, after
Under §1.101-1(e)(1) of the proposed the life settlement transaction, there are
regulations, an “interest in a life insur- two persons who have an interest in the
DQFHFRQWUDFW´LVJHQHUDOO\GH¿QHGDVWKH life insurance contract at issue: the legal
interest held by any person that has tak- WLWOHKROGHUDQGWKHQHZEHQH¿FLDORZQHU
en title to or possession of the life insur- Example 16RI†JRIWKH¿QDO
ance contract, in whole or part, for state regulations illustrates a reportable policy

1057

November 18, 2019

sale in which one acquirer acquires legal
WLWOHDQGDQRWKHUDFTXLUHVEHQH¿FLDORZQership.
B. Section 1035 exchanges
Section 1.101-1(e)(2) of the proposed
regulations provides that the issuance of
a life insurance contract to a policyholder,
other than the issuance of a policy in an
H[FKDQJHSXUVXDQWWRVHFWLRQLVQRW
a transfer of an interest in a life insurance
contract. The preamble to the proposed
regulations requests comments on whether the proposed regulations should include
additional provisions regarding the treatPHQW RI VHFWLRQ  H[FKDQJHV RI OLIH
insurance contracts. See 84 FR 11009,
11019.
One commenter on the proposed regulations recommended that no additional
provisions be added to the proposed regulations for this circumstance. The commenter stated that the acquirer of a life
insurance contract in a reportable policy
sale would be unlikely to meet the requirements for an insurable interest in the
insured and, consequently, would not be
DEOHWRPDNHDVHFWLRQH[FKDQJH,Q
support of this position, the commenter
H[SODLQHG WKDW LQ RUGHU IRU DQ H[FKDQJH
of policies to qualify as a section 1035
H[FKDQJH WKH RZQHU RI WKH QHZ FRQWUDFW
must be the same person who owned the
ROG FRQWUDFW DW WKH WLPH RI WKH H[FKDQJH
The commenter also stated that an insurer can issue a new policy only when that
new policy will meet state insurance laws
requiring an insurable interest in the insured, and an insurable interest is generally based on a close familial relationship
with the insured or a lawful and substanWLDO¿QDQFLDOLQWHUHVWLQWKHFRQWLQXHGOLIH
of the insured.
Another commenter recommended that
the statement in §1.101-1(e)(2) of the proposed regulations regarding section 1035
H[FKDQJHVEHGHOHWHGRUDPHQGHGWRHOLPLnate any suggestion that such transactions,
by themselves, can lead to reportable policy sales. The commenter indicated that the
statement suggests that the mere issuance
of a new life insurance policy in a section
H[FKDQJHFRXOGRUSHUKDSVZRXOG
give rise to a reportable policy sale and asserted that such treatment is unnecessary
and would be inappropriate.

November 18, 2019

In support of this position, the comPHQWHU H[SODLQHG WKDW PHFKDQLFDOO\ D
VHFWLRQH[FKDQJHW\SLFDOO\LQYROYHV
the assignment by the policyholder of the
H[LVWLQJSROLF\WRWKHFDUULHUIROORZHGE\
the surrender of the policy and the application of the cash proceeds as a premium under a new policy issued to the same owner
on the same insured’s life. The commenter
remarked that, although the new carrier
acquires an interest in the old policy, that
LQWHUHVWLVLPPHGLDWHO\H[WLQJXLVKHG7KH
commenter also remarked that treating the
H[FKDQJHDVDUHSRUWDEOHSROLF\VDOHLVQRW
necessary to serve any information collecWLRQ SXUSRVH LQ WKH FDVH RI DQ H[FKDQJH
involving a new, different carrier, because
WKHH[FKDQJHPXVWEHUHSRUWHGWRWKH,56
and the policyholder on a Form 1099-R.
Additionally, the commenter suggested
WKDW HYHQ LI DQ H[FKDQJH ZHUH YLHZHG
DV SRWHQWLDOO\ PHHWLQJ WKH GH¿QLWLRQ RI
a reportable policy sale, the new carrier
should be viewed as having a substantial
EXVLQHVVRU¿QDQFLDOUHODWLRQVKLSZLWKWKH
insured, considering that the carrier just
issued a new policy on that individual’s
life.
The commenter suggested that, if there
DUHVSHFL¿FWUDQVDFWLRQVLQYROYLQJVHFWLRQ
H[FKDQJHVWKDWIDOORXWVLGHWKHQRUmal situation described by the commenter, and the Treasury Department and the
IRS determine that such atypical scenarios might give rise to reportable policy
sales, the scope of any provision addressing those transactions should be limited
to those particular transactions, so that
doubt will not be cast on everyday policy
H[FKDQJHV
The reference in §1.101-1(e)(2) of the
SURSRVHG UHJXODWLRQV WR VHFWLRQ  H[changes was not intended to imply that the
transfer of a policy to an insurance comSDQ\ LQ D VHFWLRQ  H[FKDQJH ZRXOG
be a reportable policy sale. In response to
the comments received on section 1035
H[FKDQJHV†FLYRIWKH¿QDO
regulations provides that the acquisition
of a life insurance contract by an insurDQFHFRPSDQ\LQDQH[FKDQJHSXUVXDQWWR
section 1035 (such as the acquisition that
would result from the assignment by the
SROLF\KROGHURIWKHH[LVWLQJSROLF\WRWKH
LQVXUDQFHFRPSDQ\LQH[FKDQJHIRUWKHLVsuance of a new life insurance contract) is
not a reportable policy sale.

1058

The concern prompting the reference
in §1.101-1(e)(2) of the proposed reguODWLRQVWRVHFWLRQH[FKDQJHVUHODWHG
to the possibility that a policy transferred
in a reportable policy sale subsequentO\ FRXOG EH H[FKDQJHG IRU D QHZ SROLF\
LQ DQ H[FKDQJH SXUVXDQW WR VHFWLRQ 
and that, absent the reference in §1.101HWKHGHDWKEHQH¿WVSDLGXQGHUWKH
new policy might not be reported under
VHFWLRQ<F8QGHUWKH¿QDOUHJXODtions, which adopt §1.101-1(e)(2) of the
proposed regulations as proposed, the issuance of a new life insurance contract to
DSROLF\KROGHULQDQH[FKDQJHSXUVXDQWWR
section 1035 is a transfer of an interest in
a life insurance contract (the newly issued
life insurance contract) to the policyholder, which results in a direct acquisition
of an interest in a life insurance contract
(the newly issued life insurance contract)
by the policyholder. See §1.101-1(e)(2)
DQGLRIWKH¿QDOUHJXODWLRQV7KHWD[
treatment of the newly issued life insurance contract under section 101 is not afIHFWHG E\ WKH WD[ WUHDWPHQW RI WKH SROLF\
IRUZKLFKLWZDVH[FKDQJHG+RZHYHULI
the policyholder’s acquisition of the newly issued contract constitutes a reportable
policy sale, the rules generally applicable
to reportable policy sales under section
101 and the regulations thereunder apply
to determine the effect of the reportable
SROLF\ VDOH RQ WKH WD[ WUHDWPHQW RI WKH
newly issued policy under section 101,
and the rules generally applicable to reportable policy sales under section 6050Y
and the regulations thereunder apply to
determine whether section 6050Y reporting is required with respect to the reportDEOHSROLF\VDOH7KH¿QDOUHJXODWLRQVSURvide that the acquisition of a newly issued
life insurance contract by a policyholder
LQDQH[FKDQJHSXUVXDQWWRVHFWLRQLV
not a reportable policy sale, if the policyholder has a substantial family, business,
RU¿QDQFLDOUHODWLRQVKLSZLWKWKHLQVXUHG
apart from its interest in the life insurance
FRQWUDFWDWWKHWLPHRIWKHH[FKDQJHSee
†FYRIWKH¿QDOUHJXODWLRQV
,IQRVXFKUHODWLRQVKLSH[LVWVDWWKHWLPHRI
WKHVHFWLRQH[FKDQJHWKHH[FKDQJHLV
a reportable policy sale under §1.101-1(c)
RIWKH¿QDOUHJXODWLRQV7KH7UHDVXU\
Department and the IRS have determined
WKDW QR H[FHSWLRQ IURP WKH GH¿QLWLRQ RI
reportable policy sale should apply in this

Bulletin No. 2019–47

situation. Based on comments received,
this situation should rarely arise due to
state law insurable interest requirements.
Should this situation arise, however,
the policyholder, as an acquirer, must furnish the statement to the issuer required by
section 6050Y(a)(2) and §1.6050Y-2(d)
 RI WKH ¿QDO UHJXODWLRQV WKH UHSRUWable policy sale statement or “RPSS”).
See †<I RI WKH ¿QDO UHJXODtions. In this case, the statement must be
furnished to the issuer that issues the new
life insurance contract. See §1.6050Y-1(8)
LLRIWKH¿QDOUHJXODWLRQV+RZHYHUWKH
SROLF\KROGHU LV QRW UHTXLUHG WR ¿OH WKH
information return required by section
6050Y(a)(1) and §1.6050Y-2(a) of the
¿QDO UHJXODWLRQV See §1.6050Y-2(f)(3).
Also, because the policyholder is not only
the acquirer, but is also the reportable policy sale payment recipient and the seller
with respect to the reportable policy sale,
the policyholder is not required to furnish
the statement generally required to be furnished to the reportable policy sale payment recipient under §1.6050Y-2(d)(1) of
WKH ¿QDO UHJXODWLRQV See §1.6050Y-1(a)
  DQG  RI WKH ¿QDO UHJXODWLRQV †<I RI WKH ¿QDO UHJXlations. Additionally, although the issuer
that issues the new life insurance contract receives an RPSS, it is not required
WR ¿OH D UHWXUQ RU IXUQLVK D VWDWHPHQW WR
the seller under section 6050Y(b) and
§1.6050Y-3 because the seller does not
need the information that would be provided on the statement to properly report a
VHFWLRQH[FKDQJHSee §1.6050Y-3(f)
 RI WKH ¿QDO UHJXODWLRQV +RZHYHU LI
the issuer makes a payment of reportable
GHDWKEHQH¿WVXQGHUWKHQHZO\LVVXHGOLIH
insurance contract, the issuer must report
that payment under section 6050Y(c) and
†<RIWKH¿QDOUHJXODWLRQVXQOHVV
DQH[FHSWLRQXQGHU†<DSSOLHV
C. Ordinary course trade or business
acquisitions
Several commenters on Notice 201841 suggested that acquisitions of life insurance contracts, or interests therein,
in ordinary course business transactions
in which one trade or business acquires
another trade or business that owns life
insurance on the lives of former employees or directors should not be reportable

Bulletin No. 2019–47

policy sales. The proposed regulations
LQFOXGHSURYLVLRQVWKDWH[FOXGHFHUWDLQRI
WKHVH WUDQVDFWLRQV IURP WKH GH¿QLWLRQ RI
reportable policy sales. These provisions
LQFOXGHWKHGH¿QLWLRQRIVXEVWDQWLDOEXVLness relationship in §1.101-1(d)(2) of the
proposed regulations, the special rule for
indirect acquisitions in §1.101-1(d)(4)(i)
RIWKHSURSRVHGUHJXODWLRQVDQGWKHGH¿nition of the term “indirect acquisition of
an interest in a life insurance contract” in
§1.101-1(e)(3)(ii) of the proposed regulations.
Two commenters on the proposed regulations suggested that ordinary course
business transactions (such as mergers
or acquisitions) involving businesses that
own life insurance contracts were not
intended by Congress to fall within the
meaning of a reportable policy sale and
noted that the rules describing a reportable policy sale in the proposed regulaWLRQV DUH YHU\ KHOSIXO LQ FRQ¿UPLQJ WKDW
narrow intent. Another commenter stated that, although the legislative history
does not elaborate on the intent of section
101(a)(3)(A) (which limits the carryover
EDVLVH[FHSWLRQWRWUDQVIHUVIRUYDOXHWKDW
IDOO RXWVLGH WKH GH¿QLWLRQ RI UHSRUWDEOH
policy sale in section 101(a)(3)(B)), it is
widely understood to be aimed at ensuring
enforcement of the transfer for value rule
with respect to newer forms of speculative
transfers involving life insurance policies,
rather than imposing new restrictions on
legitimate business uses of life insurance.
The commenter asserted that the preamble
to the proposed regulations implicitly acknowledges this by stating that some provisions are meant to ensure that “certain
ordinary course business transactions”
will not be treated as reportable policy sales. In response to these comments
VXSSRUWLQJWKHRUGLQDU\FRXUVHH[FOXVLRQV
IURP WKH GH¿QLWLRQ RI UHSRUWDEOH SROLF\
sales in the proposed regulations, those
SURYLVLRQV DUH UHWDLQHG LQ WKH ¿QDO UHJXlations.
One commenter on the proposed regulations requested that the proposed regulations be revised to provide that any transfer
of an interest in a life insurance contract as
SDUWRIDWD[IUHHUHRUJDQL]DWLRQFRQGXFWed in the ordinary course of business is
HOLJLEOHIRUDQH[FHSWLRQWREHLQJWUHDWHG
as a reportable policy sale under section
101(a)(3)(B), regardless of whether the

1059

WDUJHWVXUYLYHVWKHUHRUJDQL]DWLRQWUDQVDFtion. In this regard, the commenter recommended revising §1.101-1(e)(3)(ii) of the
SURSRVHG UHJXODWLRQV ZKLFK GH¿QHV WKH
term “indirect acquisition of an interest in
D OLIH LQVXUDQFH FRQWUDFW´ WR VSHFL¿FDOO\
cover all transactions involving the acquisition of a C corporation that qualify for
WD[IUHH UHRUJDQL]DWLRQ WUHDWPHQW XQOHVV
immediately prior to the acquisition, more
than 50 percent of the gross value of the
assets of the C corporation consists of life
insurance contracts. The commenter also
UHFRPPHQGHGDGGLQJDQH[DPSOHWRLOOXVtrate this point. The commenter concluded
that §1.101-1(e)(3)(ii) of the proposed regulations applies in the case of acquisition
WUDQVDFWLRQV LQ ZKLFK WKH FRUSRUDWH H[LVtence of the target survives the acquisition
IRULQVWDQFHDWD[DEOHVWRFNVDOHZLWKQR
section 338 election, a reverse subsidiary
PHUJHUVWUXFWXUHGWRTXDOLI\DVDWD[IUHH
UHRUJDQL]DWLRQXQGHUVHFWLRQD(
RUDWD[IUHHUHRUJDQL]DWLRQXQGHUVHFWLRQ
368(a)(1)(B)) and appears not to apply
in the case of acquisition transactions in
which the target corporation is merged
with and into the acquiring corporation
DQG WKH WDUJHW¶V VHSDUDWH FRUSRUDWH H[LVtence is terminated as of the merger date
IRU LQVWDQFH D WD[IUHH UHRUJDQL]DWLRQ
under section 368(a)(1)(A), (C), or (D) or
section 368(a)(2)(D)).
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
DEHQH¿FLDORZQHURIDSDUWQHUVKLSWUXVW
or other entity that holds (whether directly
or indirectly) the interest in the life insurance contract. However, for this purpose,
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 immediately before the indirect
acquisition. Accordingly, the acquisition
of ownership of a C corporation that owns
an interest in a life insurance contract is
not an indirect acquisition of such an interest, and therefore is not a reportable
policy sale, if no more than 50 percent
of the gross value of the assets of the C
corporation consists of life insurance contracts. The commenter thus is correct that
§1.101-1(e)(3)(ii) of the proposed regulations applies only in the case of indirect

November 18, 2019

acquisitions of life insurance contracts
ZKLFK LQFOXGH D WD[IUHH UHRUJDQL]DWLRQ
LQZKLFKWKHFRUSRUDWHH[LVWHQFHRIWKHWDUget that holds an interest in a life insurance
contract survives the acquisition), and not
direct acquisitions of life insurance conWUDFWV ZKLFK LQFOXGH D WD[IUHH UHRUJDQL]DWLRQ LQ ZKLFK WKH VHSDUDWH FRUSRUDWH
H[LVWHQFHRIDWDUJHWWKDWKROGVDQLQWHUHVW
in a life insurance contract is terminated).
The commenter asserted that this
disparate treatment (between policies
WUDQVIHUUHG GLUHFWO\ LQ WD[IUHH DVVHW UHRUJDQL]DWLRQV DQG LQGLUHFWO\ LQ VWRFN UHRUJDQL]DWLRQV LV LQDSSURSULDWH DQG QRW
ZDUUDQWHGDVDPDWWHURIJRRGWD[SROLF\
The commenter further asserted that all
WD[IUHHUHRUJDQL]DWLRQVVKRXOGEHHOLJLEOH
IRU DQ H[FHSWLRQ VLPLODU WR WKH H[FHSWLRQ
provided in §1.101-1(e)(3)(ii) of the proposed regulations. The commenter noted
that the proposed regulations provide cerWDLQ H[FHSWLRQV WKDW FRXOG DSSO\ WR WD[
free mergers in which the target goes out
RIH[LVWHQFHDQGWKHVXUYLYLQJFRUSRUDWLRQ
continues to hold the life insurance contract, but asserted that having to determine
LQWKHVHW\SHVRIWD[IUHHPHUJHUVZKHWKHU
D SDUWLFXODU H[FHSWLRQ DSSOLHV RQ D FRQWUDFWE\FRQWUDFWEDVLVLVXQGXO\FRPSOH[
and a trap for the unwary. The commenter
IXUWKHUDVVHUWHGWKDWWKLVEXUGHQVRPHH[ercise does not appear to serve the purpose
of the change in the statute, which is to
address abusive transactions and a failure
to report income when appropriate.
7KH ¿QDO UHJXODWLRQVGR QRW DGRSW WKH
commenter’s recommendation regarding
amendments to §1.101-1(e)(3)(ii). The
H[FHSWLRQLQ†HLLRIWKHSURposed regulations is not targeted to acquiVLWLRQVRI&FRUSRUDWLRQVWRFNLQWD[IUHH
UHRUJDQL]DWLRQVEXWLQVWHDGLVDUHODWLYHO\
EURDGH[FHSWLRQWKDWDSSOLHVWRWKHDFTXLsition of any interest in a C corporation,
provided that no more than 50 percent of
the C corporation’s gross asset value conVLVWV RI OLIH LQVXUDQFH FRQWUDFWV7KLV H[FHSWLRQLVRQHRIDQXPEHURIH[FHSWLRQV
in the proposed regulations intended to
provide relief for indirect acquisitions in
which acquisition of the underlying life

insurance contract interest likely was not
DVLJQL¿FDQWPRWLYDWLQJIDFWRUIRUWKHDFTXLVLWLRQ 7KH ¿QDO UHJXODWLRQV SUHVHUYH
the different results for stock and asset
UHRUJDQL]DWLRQV EHFDXVH WKHUH DUH VLJQL¿cant differences between these two types
RI UHRUJDQL]DWLRQV DQG WKH 7UHDVXU\ 'Hpartment and the IRS have concluded
that those distinctions justify different
treatment for purposes of sections 101
DQG < ,Q DGGLWLRQ QR H[FHSWLRQ LV
SURYLGHG LQ WKH ¿QDO UHJXODWLRQV WKDW H[FOXGHVUHRUJDQL]DWLRQVIURPWKHGH¿QLWLRQ
of a reportable policy sale. Rather, there
DUHH[FOXVLRQVEDVHGRQWKHDSSOLFDWLRQRI
WKHGH¿QLWLRQVRIVXEVWDQWLDOUHODWLRQVKLSV
DVPDQGDWHGE\WKHVWDWXWHDQGH[FHSWLRQV
for certain indirect acquisitions that may
produce different results in different types
RIUHRUJDQL]DWLRQV
One reason for treating indirect and direct acquisitions of life insurance contract
interests differently is that an acquirer of
an interest in an entity may have limited
ability to determine what types of assets
an entity owns, or to obtain from the entity information necessary to report on
WKHHQWLW\¶VDVVHWV7KXVIRUH[DPSOHWKH
proposed regulations provide a reportable
SROLF\ VDOH H[FHSWLRQ IRU WKH DFTXLVLWLRQ
RIDVPDOO¿YHSHUFHQWRUOHVVLQWHUHVWLQ
any entity, unless more than 50 percent of
the entity’s gross asset value consists of
life insurance contracts. See §1.101-1(c)
(2)(iii)(B) of the proposed regulations. In
addition, in the case of a C corporation, a
FRUSRUDWHOHYHOLQFRPHWD[DSSOLHVWRFRUSRUDWHHDUQLQJVLQDGGLWLRQWRLQFRPHWD[
on distributions at the shareholder level.
As a result, C corporations are not frequently used as vehicles for investing in
life insurance contracts covering insureds
with respect to which the corporation does
QRWKDYHDVXEVWDQWLDOEXVLQHVV¿QDQFLDO
or family relationship at the time the contract is issued. For this reason, the proposed regulations provide a more generRXVH[FHSWLRQIRUDFTXLVLWLRQVRILQWHUHVWV
in a C corporation, provided that no more
than 50 percent of the C corporation’s
gross asset value consists of life insurance
contracts, as determined under §1.101-

1(f)(4) of the proposed regulations. See
§1.101-1(e)(3)(ii) of the proposed regulations.4
After the TCJA amendments to section 101, the fact that the transfer of a life
insurance contract occurs in a carryover
basis transaction qualifying under section
D$VXFKDVDWD[IUHHUHRUJDQL]DWLRQLVQRORQJHUVXI¿FLHQWWRDYRLGWKH
limit on the amount of life insurance poliF\SURFHHGVWKDWDUHH[FOXGDEOHIURPJURVV
income under the section 101(a)(1) transfer for value rule. Rather, Congress proYLGHGWKDWWKHFDUU\RYHUEDVLVH[FHSWLRQLQ
section 101(a)(2)(A) does not apply unless
the transferee also has a substantial family,
EXVLQHVVRU¿QDQFLDOUHODWLRQVKLSZLWKWKH
insured. Under the proposed regulations,
in the case of life insurance contracts
WUDQVIHUUHGLQDQDVVHWUHRUJDQL]DWLRQWKH
VXUYLYLQJFRUSRUDWLRQFRXOGIRUH[DPSOH
establish that a substantial business relaWLRQVKLSH[LVWVE\GHWHUPLQLQJWKDWWKHOLIH
insurance policies transferred in the reRUJDQL]DWLRQ FRYHU LQVXUHGV ZKR DUH NH\
persons of, or materially participate in, an
active trade or business of the acquirer as
owners, employees, or contractors. See
§1.101-1(d)(2)(i) of the proposed regulations. The surviving corporation could
also establish that a substantial business
UHODWLRQVKLS H[LVWV E\ GHWHUPLQLQJ WKDW
the life insurance contracts cover insureds
ZKR HLWKHU L DUH RI¿FHUV GLUHFWRUV RU
employees of the business being acquired
immediately before the acquisition or (ii)
previously were directors, highly compensated employees or highly compensated individuals within the meaning of
section 101(j)(2)(A)(ii) and the surviving
FRUSRUDWLRQ ZLOO KDYH RQJRLQJ ¿QDQFLDO
obligations with respect to these individuals after the acquisition (such as retirement obligations). See §1.101-1(d)(2)(ii)
of the proposed regulations. Corporations
must track this data annually for purposes
of section 101(j) corporate owned life insurance (COLI) reporting obligations and
related recordkeeping, so it should not be
overly burdensome to obtain this informaWLRQ$GGLWLRQDOO\LQDQDVVHWUHRUJDQL]Dtion, it would in any case be necessary to

4
6HFWLRQIRIWKH¿QDOUHJXODWLRQVFODUL¿HVWKDWWKHJURVVYDOXHRIDVVHWVPHDQVZLWKUHVSHFWWRDQ\HQWLW\WKHIDLUPDUNHWYDOXHRIWKHHQWLW\¶VDVVHWVLQFOXGLQJDVVHWVEHQH¿FLDOO\
RZQHGE\WKHHQWLW\XQGHU†IRIWKH¿QDOUHJXODWLRQVDVDEHQH¿FLDORZQHURIDSDUWQHUVKLSWUXVWRURWKHUHQWLW\$FFRUGLQJO\WKHSHUFHQWWHVWLQ†HLLRIWKH¿QDO
UHJXODWLRQVDSSOLHVWRD&FRUSRUDWLRQ¶VDVVHWVDQGWKHDVVHWVKHOGE\DQ\SDUWQHUVKLSWUXVWRURWKHUHQWLW\EHQH¿FLDOO\RZQHGE\WKH&FRUSRUDWLRQ

November 18, 2019

1060

Bulletin No. 2019–47

review the life insurance contracts directly
acquired on a contract-by-contract basis in
order to update insurance contract ownerVKLSDQGEHQH¿FLDU\LQIRUPDWLRQZLWKWKH
relevant insurance company.
It is possible that an asset acquisition
could result in the loss of the complete
H[FOXVLRQ RI GHDWK EHQH¿WV IURP LQFRPH
with respect to some COLI policies that
cover insureds who are not employed by
the target immediately before the acquisition or employed by the acquirer after the
acquisition and with respect to whom the
acquirer has no ongoing obligations to pay
UHWLUHPHQWRURWKHUEHQH¿WV+RZHYHUWKH
Treasury Department and the IRS have
QRWLGHQWL¿HGDQ\FOHDUSROLF\UHDVRQZK\
WKDW WD[ EHQH¿W VKRXOG FDUU\ RYHU ZKHQ
ownership of the insurance policy is transIHUUHG7KHLQGLUHFWWUDQVIHUH[FHSWLRQVLQ
the proposed regulations that could permit
&2/,EHQH¿WVWREHUHWDLQHGZLWKUHVSHFW
to some policies covering no-longer-conQHFWHG RI¿FHUV GLUHFWRUV DQG HPSOR\HHV
apply only when ownership of the insurance policy is not transferred, such as in
D VWRFN UHRUJDQL]DWLRQ 7KHVH H[FHSWLRQV
UHÀHFWDZHLJKLQJE\WKH7UHDVXU\'HSDUWment and the IRS of information collection burdens versus potential for abuse in
indirect acquisition scenarios.
The commenter also recommended
modifying the language in Example 8 of
§1.101-1(g)(8) of the proposed regulaWLRQVWRFODULI\WKDWWKHH[DPSOHLVLQWHQGed only to illustrate application of the rule
under §1.101-1(d) of the proposed regulations and is not intended to imply that,
without the insured’s current employment
by the acquired corporation, the transaction would be treated as a reportable
policy sale. Example 8 of §1.101-1(g)
(8) of the proposed regulations describes
D WD[IUHH UHRUJDQL]DWLRQ LQ ZKLFK D FRUporation transfers to an acquiring corporation its active trade or business and a
life insurance policy on the life of a current employee that was acquired from the
HPSOR\HH 7KH H[DPSOH FRQFOXGHV WKDW
because the insured was an employee of
the target corporation at the time of the
WD[IUHHUHRUJDQL]DWLRQDQGWKHDFTXLULQJ
corporation carries on the acquired trade
RU EXVLQHVV WKH WUDQVIHU LQ WKH WD[IUHH
UHRUJDQL]DWLRQ LV QRW D UHSRUWDEOH SROLF\
sale because the acquirer has a substantial business relationship with the insured

Bulletin No. 2019–47

under §1.101-1(d)(2)(ii) of the proposed
regulations. The commenter observed that
WKH H[DPSOH VXJJHVWV WKDW WKH WUDQVIHU RI
WKH SROLF\ DV SDUW RI WKH WD[IUHH UHRUJDQL]DWLRQ GHVFULEHG LQ WKH H[DPSOH ZRXOG
QRW KDYH TXDOL¿HG IRU DQ H[FHSWLRQ IURP
being treated as a reportable policy sale
under the proposed regulations absent the
H[LVWHQFHRIWKHVXEVWDQWLDOEXVLQHVVUHODtionship. The commenter’s understanding
RIWKHH[DPSOHLVFRUUHFW7KHVXEVWDQWLDO
business relationship is necessary for the
WD[IUHH UHRUJDQL]DWLRQ LQ WKH H[DPSOH WR
avoid being treated as a reportable policy
sale. As discussed in this section of this
6XPPDU\ RI &RPPHQWV DQG ([SODQDtion of Revisions, the Treasury Department and the IRS have not adopted the
commenter’s recommendation regarding
amendments to §1.101-1(e)(3)(ii), and
WKHUHIRUHKDYHQRWUHYLVHGWKHH[DPSOHLQ
WKH¿QDOUHJXODWLRQV
This commenter also recommended a
related change to §1.101-1(d)(4)(i) of the
proposed regulations. Under §1.101-1(d)
(4)(i) of the proposed regulations, an indirect acquirer is deemed to have a subVWDQWLDO EXVLQHVV RU ¿QDQFLDO UHODWLRQVKLS
with the insured if the direct holder of the
interest in the life insurance contract has a
VXEVWDQWLDO EXVLQHVV RU ¿QDQFLDO UHODWLRQship with the insured immediately before
and after the date the indirect acquirer acquires its interest. Section 1.101-1(d)(4)
(i) of the proposed regulations provides
relief for acquirers who do not hold their
interest in the relevant life insurance contracts directly, when the direct holder of
those interests has a substantial business
RU ¿QDQFLDO UHODWLRQVKLS ZLWK WKH LQVXUHG
before and after the acquisition. The Department of Treasury and the IRS have
determined that it is not appropriate to
treat an indirect acquisition of an interest
in a life insurance contract as a reportable policy sale when the direct owner of
the interest in the life insurance contract
does not change and the direct owner has
D VXEVWDQWLDO IDPLO\ EXVLQHVV RU ¿QDQcial relationship with the insured. The
FRPPHQWHU UHFRPPHQGHG PRGL¿FDWLRQ
of §1.101-1(d)(4)(i) of the proposed regulations to eliminate what the commenter
describes as disparate treatment that arises
depending on the type of merger transaction the acquirer undertakes or whether
after the merger the insured remains with

1061

the company or retains the right to retirePHQWRURWKHUSRVWHPSOR\PHQWEHQH¿WV
First, the commenter observed that, in
DWD[IUHHPHUJHULQZKLFKWKHWDUJHWJRHV
RXW RI H[LVWHQFH WKH GLUHFW KROGHU RI WKH
OLIH LQVXUDQFH FRQWUDFW QR ORQJHU H[LVWV
and therefore would no longer have any
relationship with the insured. Accordingly, the acquirer cannot be deemed to have
D VXEVWDQWLDO EXVLQHVV RU ¿QDQFLDO UHODtionship with the insured under §1.1011(d)(4)(i) of the proposed regulations.
+RZHYHU LQ D WD[IUHH PHUJHU LQ ZKLFK
the target does not survive, §1.101-1(d)(4)
(i) of the proposed regulations would not
apply because the acquirer would own the
insurance contract directly. An acquirer
that holds its interest in the relevant life
insurance contract directly must determine whether it has a substantial family,
EXVLQHVVRU¿QDQFLDOUHODWLRQVKLSZLWKWKH
insured under §1.101-1(d) of the proposed
regulations at the time of the acquisition.
Second, the commenter suggested that
there are situations in which the insured’s
employment with the target company is
terminated as a result of a merger or acquisition, and the insured has no continuing
relationship with the surviving company
that retains the life insurance contract. The
commenter observed that, in such cases,
the “after the date of the acquisition”
prong of §1.101-1(d)(4)(i) of the proposed
UHJXODWLRQVFDQQRWEHVDWLV¿HG7KHFRPmenter recommended modifying §1.1011(d)(4)(i) of the proposed regulations to
provide that the acquirer of an interest in a
OLIHLQVXUDQFHFRQWUDFWLQDWD[IUHHPHUJHU
is deemed to have a substantial business
RU ¿QDQFLDO UHODWLRQVKLS ZLWK WKH LQVXUHG
if the target has a substantial business or
¿QDQFLDOUHODWLRQVKLSZLWKWKHLQVXUHGLPmediately prior to the merger, provided
the acquirer does not otherwise transfer
any interest in the life insurance contract
in a transaction treated as a reportable policy sale. The commenter also recommendHG WKDW WKH UXOH VSHFL¿FDOO\ VWDWH WKDW WKH
fact that the surviving company continues
to hold, after the merger, the contract on
the life of an individual with whom the
WDUJHWKDGDVXEVWDQWLDO¿QDQFLDORU EXVLness relationship is the determinative facWRUXQGHUWKLVPRGL¿HGUXOH
7KHSURSRVHGPRGL¿FDWLRQLVQRWDGRSWed because, although §1.101-1(d)(4)(i) of
the proposed regulations generally would

November 18, 2019

not apply to the situations referenced by the
commenter, the proposed regulations alUHDG\LQFOXGHH[FHSWLRQVWKDWPD\DSSO\LQ
the situations referenced by the commentHU,QDWD[IUHHPHUJHULQZKLFKWKHWDUJHW
does not survive, §1.101-1(d)(4)(i) of the
proposed regulations would not apply because the acquirer would have a direct acquisition of any interest in a life insurance
contract acquired from the target. However, the acquirer does not have a reportable
policy sale if the acquirer has a substantial
IDPLO\ EXVLQHVV RU ¿QDQFLDO UHODWLRQVKLS
with the insured. Under §1.101-1(d)(2)(ii)
of the proposed regulations, the surviving
company has a substantial business relationship with the insured, and therefore has
not acquired its interest in the life insurance
contract on the insured’s life in a reportable
policy sale, if: (1) the insured is an employee within the meaning of section 101(j)(5)
(A) of the acquired trade or business immediately preceding the acquisition, and (2)
the surviving company either carries on the
DFTXLUHGWUDGHRUEXVLQHVVRUXVHVDVLJQL¿cant portion of the acquired business assets
in an active trade or business that does not
include investing in interests in life insurance contracts. Accordingly, the proposed
regulations already include a rule similar to
the one requested by the commenter that is
applicable to direct acquisitions of interests
in life insurance contracts (such as acquiVLWLRQV UHVXOWLQJ IURP WD[IUHH PHUJHUV LQ
which the target does not survive).

partnership, trust, or other entity if all of
WKHEHQH¿FLDORZQHUVRIWKDWSDUWQHUVKLS
trust, or other entity have a substantial
family relationship with the insured. A
partnership, trust, or other entity may itVHOI KDYH D VXEVWDQWLDO EXVLQHVV RU ¿QDQcial relationship with the insured under
§1.101-1(d)(2) or (3) of the proposed regulations.
One commenter on the proposed regulations recommended that a transfer to a
trust, partnership, or other entity not be a
reportable policy sale within the meaning
RIVHFWLRQDLIDOORIWKHEHQH¿FLDO
owners of the trust, partnership, or other
entity have a substantial family, business,
RU¿QDQFLDOUHODWLRQVKLSZLWKWKHLQVXUHG
The Treasury Department and the IRS
have determined it would be appropriate
WR H[SDQG WKH GH¿QLWLRQ RI VXEVWDQWLDO
IDPLO\EXVLQHVVRU¿QDQFLDOUHODWLRQVKLS
to include the relationship between the insured and a trust, partnership, or other enWLW\HYHU\EHQH¿FLDORZQHURIZKLFKKDV
DVXEVWDQWLDOIDPLO\EXVLQHVVRU¿QDQFLDO
relationship with the insured. AccordingO\ †GLLL RI WKH ¿QDO UHJXODWLRQVSURYLGHVWKLVH[SDQGHGGH¿QLWLRQ
The commenter also suggested that
WKH GH¿QLWLRQ RI ³IDPLO\ PHPEHU´ XQGHU
§1.101-1(f)(3) should include charities to
which the insured has given substantial
¿QDQFLDO VXSSRUW RU VLJQL¿FDQW YROXQWHHU
support. Another commenter suggested
WKDWDWUXVWZLWKEHQH¿FLDULHVWKDWLQFOXGH
both individual family members and a
5. Comments and Changes Relating to
FKDULW\ ZLWK D VXEVWDQWLDO ¿QDQFLDO UHOD§1.101-1(d) of the Proposed Regulations
tionship to the insured should qualify as
a “family member.” Under §1.101-1(d)
Section 1.101-1(d) of the proposed (3)(iii) of the proposed regulations, a
UHJXODWLRQV GH¿QHV WKH WHUPV VXEVWDQWLDO VXEVWDQWLDO ¿QDQFLDO UHODWLRQVKLS H[LVWV
family relationship, substantial business between the insured and acquirer if the
UHODWLRQVKLS DQG VXEVWDQWLDO ¿QDQFLDO UH- DFTXLUHU LV DQ RUJDQL]DWLRQ GHVFULEHG LQ
lationship, and provides special rules for sections 170(c), 2055(a), and 2522(a) that
DSSO\LQJWKHVHGH¿QLWLRQV7KLVVHFWLRQRI SUHYLRXVO\ UHFHLYHG ¿QDQFLDO VXSSRUW LQ
WKLV6XPPDU\RI&RPPHQWVDQG([SODQD- D VXEVWDQWLDO DPRXQW RU VLJQL¿FDQW YROtion of Revisions discusses comments that unteer support from the insured. Under
JHQHUDOO\UHODWHWRWKHGH¿QLWLRQVDQGVSH- either of the approaches suggested by the
cial rules in §1.101-1(d) of the proposed commenters, the acquisition of an interest
regulations.
in a life insurance contract by a trust with
EHQH¿FLDULHVWKDWLQFOXGHERWKLQGLYLGXDOV
A. %HQH¿FLDORZQHUVZLWKDFRPELQDWLRQ who are family members of the insured
of substantial relationships
and a charity described in §1.101-1(d)(3)
(iii) of the proposed regulations would not
Under §1.101-1(d)(1) of the proposed be a reportable policy sale. The Treasury
regulations, a substantial family relation- 'HSDUWPHQWDQGWKH,56DJUHHWKDWWKHH[VKLS H[LVWV EHWZHHQ WKH LQVXUHG DQG D LVWHQFHRIDWUXVWEHQH¿FLDU\WKDWLVDFKDU-

November 18, 2019

1062

ity described in §1.101-1(d)(3)(iii) of the
proposed regulations should not cause a
transfer to that trust to be a reportable polLF\VDOH+RZHYHUUDWKHUWKDQH[SDQGLQJ
WKH GH¿QLWLRQ RI ³IDPLO\ PHPEHU´ XQGHU
§1.101-1(f)(3) of the proposed regulations
as suggested by the commenters, the Treasury Department and the IRS have adoptHGDPRUHGLUHFWDQGH[SDQVLYHDSSURDFK
to address the commenters’ concerns by
DGGLQJDQHZUXOHLQWKH¿QDOUHJXODWLRQV
providing that any combination of the described substantial relationships between a
WUXVW¶VEHQH¿FLDULHVDQGWKHLQVXUHGLVVXI¿FLHQWWRTXDOLI\WKHWUDQVIHUWRWKDWWUXVW
IRU WKH UHSRUWDEOH SROLF\ VDOH H[FOXVLRQ
See †GLLL RI WKH ¿QDO UHJXODWLRQV$V D UHVXOW XQGHU WKH ¿QDO UHJXODWLRQVWKHUHLVQRQHHGWRDOVRH[SUHVVO\
treat a trust established and maintained for
WKHSULPDU\EHQH¿WRIWKHLQVXUHGRURQHRU
more of the insured’s family members as a
family member of the insured. Therefore,
WKH¿QDOUHJXODWLRQVGRQRWLQFOXGHVXFKD
WUXVWLQWKHGH¿QLWLRQRIIDPLO\PHPEHU
B. 6XEVWDQWLDO¿QDQFLDOUHODWLRQVKLSV
ZLWKFKDULWLHV
Under §1.101-1(d)(3)(iii) of the proposed regulations, the acquirer of an interest in a life insurance contract has a
VXEVWDQWLDO¿QDQFLDOUHODWLRQVKLSZLWKWKH
LQVXUHG LI WKH DFTXLUHU LV DQ RUJDQL]DWLRQ
described in sections 170(c), 2055(a), and
DWKDWSUHYLRXVO\UHFHLYHG¿QDQFLDO
support in a substantial amount or significant volunteer support from the insured.
One commenter on the proposed regulations suggested that this provision be
H[SDQGHGWRLQFOXGHDQ\RWKHUVXFKRUJDQL]DWLRQ ZLWK ZKLFK WKH LQVXUHG KDV VXEstantial personal ties, such as the donor or
D IDPLO\ PHPEHU KDYLQJ EHQH¿WWHG IURP
WKH FKDULWDEOH RUJDQL]DWLRQ¶V VHUYLFHV LQ
some manner. The commenter stated that
it is not uncommon for a donor to both
(i) contribute very modestly, if at all, to
a charity during life because the donor is
FRQFHUQHG DERXW KDYLQJ VXI¿FLHQW UHWLUHPHQWLQFRPHDQGLLZDQWWREHQH¿WWKH
charity when the donor no longer needs to
preserve retirement income sources. The
commenter also stated that donors often
EHQH¿WFKDULWLHVWKURXJKHLWKHUDVSOLWLQterest trust described in section 170(f)(2)
or a bargain sale described in §1.1011-2.

Bulletin No. 2019–47

The Treasury Department and IRS
have not adopted this suggestion in the
¿QDOUHJXODWLRQVEHFDXVHLWZRXOGEHFKDOlenging to determine when personal ties
with a charity are substantial enough to
FRQVWLWXWHDVXEVWDQWLDO¿QDQFLDOUHODWLRQship with the insured, in the absence of a
VLJQL¿FDQW GRQDWLRQ RI WLPH RU SURSHUW\
Also, there generally will be little detriment to a charity as a result of an acquisition (whether gratuitous or for value)
of an interest in a life insurance contract
in a reportable policy sale. Nevertheless,
DVGLVFXVVHGODWHULQWKLVVHFWLRQWKH¿QDO
regulations provide that the category of
charities considered to have a substantial
¿QDQFLDOUHODWLRQVKLSZLWKDQLQVXUHGPD\
EHH[SDQGHGLQWKHIXWXUHLQJXLGDQFHSXElished in the Internal Revenue Bulletin.
Treating a gratuitous transfer of an interest in a life insurance contract (or the
part of the transfer that is gratuitous, in
the case of a bargain sale) as a reportable
policy sale does not affect the amount
RI SURFHHGV H[FOXGDEOH E\ WKH JUDWXLWRXV
transferee. Section 1.101-1(b)(2)(i) of the
¿QDO UHJXODWLRQV DSSOLHV WR DOO JUDWXLWRXV
transfers of interests in life insurance
contracts and generally provides that the
transferee in a gratuitous transfer of an
interest in a life insurance contract steps
into the shoes of the transferor and may
H[FOXGHGHDWKEHQH¿WVSDLGXQGHUWKHFRQWUDFWIURPJURVVLQFRPHWRWKHVDPHH[WHQW
that the transferor would have been able
WRH[FOXGHWKHEHQH¿WVLQDGGLWLRQWRWKH
premiums and other amounts paid by the
transferee. Furthermore, treatment of a
gratuitous transfer as a reportable policy
sale does not result in reporting obligations for the gratuitous transferee because
the gratuitous transferor is not a reportable policy sale payment recipient. See
§§1.6050Y-1(a)(16) and 1.6050Y-2(a) of
WKH¿QDOUHJXODWLRQV
Even if a charity purchased some or all
of its interest in a life insurance contract
for valuable consideration, a charity genHUDOO\LVQRWVXEMHFWWR)HGHUDOLQFRPHWD[
on its income (including insurance policy
proceeds) unless the income arises from
an unrelated trade or business. Thus, the
charity’s obligation in case of a purchase
generally would be limited to acquirer reporting under §1.6050Y-2, which merely
requires providing on Form 1099-LS information that should be readily available

Bulletin No. 2019–47

to the charity. This reporting provides important information regarding the sale to
reportable policy sale payment recipients
and the IRS.
In response to the commenter’s conFHUQVKRZHYHUWKH¿QDOUHJXODWLRQVSURvide that the IRS may publish guidance
in the Internal Revenue Bulletin (see
§601.601(d)(2) of this chapter) describing
RWKHUVLWXDWLRQVLQZKLFKDVXEVWDQWLDO¿QDQFLDOUHODWLRQVKLSH[LVWVEHWZHHQWKHLQVXUHGDQGDQDFTXLUHUWKDWLVDQRUJDQL]Dtion described in sections 170(c), 2055(a),
and 2522(a). See §1.101-1(d)(3)(iii) of the
¿QDOUHJXODWLRQV
C. 6XEVWDQWLDO¿QDQFLDOUHODWLRQVKLSVDQG
BOLI pooling transactions
One commenter on the proposed regXODWLRQVUHTXHVWHGFRQ¿UPDWLRQWKDWDUHportable policy sale will not arise when a
life insurance policy is involved in a transaction that pools bank-owned life insurDQFH %2/, 7KH FRPPHQWHU H[SODLQHG
that businesses, such as banks, commonly
promise certain pre-and post-retirement
EHQH¿WVWRWKHLUHPSOR\HHVVXFKDVUHWLUHH KHDOWK FDUH EHQH¿WV ZKLFK FDQ UHVXOW
in substantial liabilities for the businesses
WKDW PXVW EH UHÀHFWHG RQ WKHLU ¿QDQFLDO
statements. The commenter described
BOLI as permanent, cash value life insurance coverage on the lives of a bank’s of¿FHUVGLUHFWRUVDQGHPSOR\HHVSXUFKDVHG
by the bank to fund such obligations inforPDOO\DQGWRHVWDEOLVKDVVHWVRQLWV¿QDQcial statements to offset liabilities for the
SURPLVHGEHQH¿WV7KHFRPPHQWHUVWDWHG
that BOLI owners typically hold the polLFLHVXQWLOWKHGHDWKEHQH¿WVEHFRPHSD\DEOHDQGXVHWKHEHQH¿WVWRIXQGWKHFRVWV
RI WKH HPSOR\HH EHQH¿WV RU WR UHFRYHU
such costs after the fact. The commenter
described BOLI pooling transactions as
transactions that pool the BOLI policies of
multiple banks for the continued purpose
of funding each bank’s employee bene¿WV EXW LQ D PRUH HIIHFWLYH FHQWUDOL]HG
way. The commenter described the initial
step of a BOLI pooling transaction as the
transfer by multiple unrelated banks of
WKHLUSUHH[LVWLQJ%2/,SROLFLHVWRDSDUWnership, in return for which each bank receives a partnership interest proportional
to the value of its contributed policies. The
FRPPHQWHUH[SODLQHGWKDWWKHSDUWQHUVKLS

1063

holds and manages the contributed poliFLHVDQGGLVWULEXWHVGHDWKEHQH¿WVDPRQJ
the bank-partners pro rata based on their
respective partnership interests, which
LV H[SHFWHG WR KHOS QRUPDOL]H FDVK ÀRZV
from the policies.
The commenter asserted that BOLI
pooling transactions are ordinary course
business transactions that should not be
treated as reportable policy sales because
they are not speculative and can be distinguished from sales of policies to third
parties because the intent and result is to
pool the policies among all the original
policyholders for the continued purpose
RI IXQGLQJ WKHLU HPSOR\HH EHQH¿W OLDELOities. The commenter noted that the IRS
has issued private letter rulings that con¿UP GLUHFWO\ RU LQGLUHFWO\ WKDW WKH FDUU\RYHUEDVLVH[FHSWLRQWRWKHWUDQVIHUIRU
value rule in section 101(a)(2) applies to
a bank’s contribution of BOLI policies to
the partnership in a BOLI pooling transacWLRQWKHUHE\SUHVHUYLQJWKHWD[IUHHFKDUDFWHU RI WKH GHDWK EHQH¿WV ZKHQ SDLG WR
the partnership. These rulings pre-date the
addition of section 101(a)(3) to the Code.
The reportable policy sale rules of section
101(a)(3) are in addition to the carryover
EDVLVH[FHSWLRQRIVHFWLRQD$VD
result, policy transfers are ineligible for
WKH FDUU\RYHU EDVLV H[FHSWLRQ LI QR VXEVWDQWLDOIDPLO\EXVLQHVVRU¿QDQFLDOUHODWLRQVKLSH[LVWVEHWZHHQWKHDFTXLUHURIDQ
interest in a life insurance contract and the
insured under that contract at the time of
the acquisition.
The commenter asserted that the proposed regulations support the requested
treatment of BOLI pooling transactions
EHFDXVH D VXEVWDQWLDO ¿QDQFLDO UHODWLRQVKLS H[LVWV EHWZHHQ WKH DFTXLUHU DQG LQVXUHG$VXEVWDQWLDO¿QDQFLDOUHODWLRQVKLS
H[LVWVXQGHU†GLLRIWKHSURposed regulations if 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. The commenter asserted that this provision applies in BOLI
pooling transactions with respect to both
the bank and the partnership as follows:
(1) the partnership has a direct acquisition of life insurance policies, which it
maintains to satisfy liabilities following
the death of the insured, namely, the emSOR\HHEHQH¿WOLDELOLWLHVRIWKHEDQNSDUW-

November 18, 2019

ners for which they originally purchased
the policies; (2) the bank has an indirect
acquisition of life insurance policies contributed by other banks to the partnership;
and (3) the bank maintains its indirect interest in those policies to continue funding
WKHVDPHHPSOR\HHEHQH¿WOLDELOLWLHV7KH
FRPPHQWHUUHFRPPHQGHGFODUL¿FDWLRQRI
WKH UHJXODWLRQV WR FRQ¿UP WKLV WUHDWPHQW
either by adding additional language to
WKH GH¿QLWLRQ RI VXEVWDQWLDO ¿QDQFLDO UHODWLRQVKLS RU E\ DGGLQJ DQ H[DPSOH WKDW
applies that provision to the BOLI pooling
transaction. Alternatively, the commenter
VXJJHVWHG D VHSDUDWH H[FHSWLRQ WR WKH UHSRUWDEOHSROLF\VDOHGH¿QLWLRQ
7KH ¿QDO UHJXODWLRQVGR QRW DGRSW WKH
commenter’s requested changes because
the changes would be inconsistent with
the statute. The proposed regulations do
not support, and were not intended to
support, the requested treatment of BOLI
pooling transactions.
First, the partnership described by the
commenter does not have a substantial
IDPLO\ EXVLQHVV RU ¿QDQFLDO UHODWLRQship with the insureds under the proposed
UHJXODWLRQV6SHFL¿FDOO\LWGRHVQRWKDYH
D VXEVWDQWLDO ¿QDQFLDO UHODWLRQVKLS ZLWK
any insured under §1.101-1(d)(3)(ii) of
the proposed regulations because it does
not maintain the life insurance contract
on the life of the insured to provide funds
for the partnership to purchase assets or
satisfy liabilities following the insured’s
death. As described by the commenter,
the partnership maintains the life insurance contracts to provide its partners, the
banks, with funds to satisfy the banks’
HPSOR\HH EHQH¿W OLDELOLWLHV$FFRUGLQJO\
the partnership’s acquisition of the life
insurance contracts in the circumstances
described is a reportable policy sale that
must be reported under section 6050Y and
§1.6050Y-2 of the proposed regulations.
6HFRQG WKH GH¿QLWLRQ RI D VXEVWDQWLDO
¿QDQFLDO UHODWLRQVKLS LQ †G
(ii) of the proposed regulations was not
intended to cover relationships as tenuRXVDVWKRVHH[LVWLQJEHWZHHQWKHLQGLUHFW
acquirers (the banks) and the insureds in
the BOLI pooling transactions described
by the commenter. Section 1.101-1(d)(3)
(ii) of the proposed regulations was intended to cover situations in which the
life insurance contract is held to provide
funds to purchase assets or satisfy liabili-

November 18, 2019

ties, when the need for the asset purchases
or liability payments results from the insured’s death. In the situation described by
the commenter, a bank does not have this
kind of relationship with the insureds under life insurance contracts contributed to
the partnership by other banks. However,
in the circumstances described, because
the partnership acquires the life insurance
contracts in a reportable policy sale that
must be reported under section 6050Y(a)
and §1.6050Y-2 of the proposed regulations, the bank’s indirect acquisition of
the life insurance contracts is not a reportable policy sale, provided the partnership
complies with the reporting requirements.
See §1.101-1(c)(2)(iii)(A) of the proposed
regulations.
D. 6XEVWDQWLDO¿QDQFLDOUHODWLRQVKLSV
under §1.101-1(d)(3)(ii)
$VXEVWDQWLDO¿QDQFLDOUHODWLRQVKLSH[ists under §1.101-1(d)(3)(ii) of the proposed regulations if 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. As described in section 5.C of this Summary of Comments
DQG([SODQDWLRQRI5HYLVLRQVWKLVGH¿QLtion was intended to apply in situations in
which the life insurance contract is held
to provide funds to purchase assets or satisfy liabilities following the death of the
insured, when the need for the asset purchases or liability payments results from
the insured’s death. Accordingly, §1.101GLLRIWKH¿QDOUHJXODWLRQVUHYLVHV
WKHGH¿QLWLRQWRSURYLGHWKDWDVXEVWDQWLDO
¿QDQFLDO UHODWLRQVKLS H[LVWV EHWZHHQ WKH
acquirer and insured if the acquirer maintains the life insurance contract on the life
of the insured to provide funds to purchase
assets of or to satisfy liabilities of the insured or the insured’s estate, heirs, legatees, or other successors in interest, or to
satisfy other liabilities arising upon or by
reason of the death of the insured.

the characteristics of life insurance proceeds payable by reason of death under
contracts, such as workmen’s compensation insurance contracts, endowment contracts, or accident and health insurance
contracts, are covered by this provision.”
As noted in the preamble to the proposed
UHJXODWLRQV WKLV XSGDWH UHÀHFWV WKH DGGLtion of section 7702 to the Code in 1984.
See 84 FR 11015.
One commenter stated that it is important that no changes be made with respect
to the second sentence because the benH¿WV GHVFULEHG WKHUHLQ ZHUH ZULWWHQ LQWR
older policies, some of which are still in
effect, and changing the rules would negatively impact policyholders who have
ORQJ UHOLHG RQ WKH DSSURSULDWH H[FOXVLRQ
RIWKHVHGHDWKEHQH¿WVIURPLQFRPH7KH
commenter further stated that there is a
ORQJVWDQGLQJDQGH[WHQVLYHERG\RIFRXUW
decisions and IRS rulings that establish
WKHFRQGLWLRQVXQGHUZKLFKVXFKEHQH¿WV
qualify for treatment as life insurance proceeds.
,QUHVSRQVHWRWKHVHFRPPHQWVWKH¿nal regulations revise, rather than remove,
the second sentence of §1.101-1(a)(1) of
WKHH[LVWLQJUHJXODWLRQVWRFODULI\WKDWWKH
sentence only applies to contracts issued
on or before December 31, 1984, the effective date of section 7702.
7. Comments and Changes Relating to
§1.6050Y-1 of the Proposed Regulations
Section 1.6050Y-1(a) of the proposed
UHJXODWLRQVSURYLGHVGH¿QLWLRQVIRUWHUPV
used in §§1.6050Y-1 through -4 of the
proposed regulations. This section of this
6XPPDU\ RI &RPPHQWV DQG ([SODQDWLRQ
of Revisions discusses comments received
that generally relate to §1.6050Y-1(a) of
the proposed regulations.
A. 'H¿QLWLRQRILVVXHU

6HFWLRQ<GGH¿QHVLVVXHUWR
mean any life insurance company that
bears the risk with respect to a life insur6. Comments and Changes Relating to
ance contract on the date any return or
§1.101-1(a) of the Proposed Regulations
statement is required to be made under
VHFWLRQ < 7KH GH¿QLWLRQ RI LVVXHU
The proposed regulations would re- under the proposed regulations depends
move the second sentence of §1.101-1(a) RQWKHFRQWH[WLQZKLFKWKHWHUPLVXVHG
 RI WKH H[LVWLQJ UHJXODWLRQV ZKLFK In general, the term “issuer” means, on
VWDWHV ³'HDWK EHQH¿W SD\PHQWV KDYLQJ any date, with respect to any interest in

1064

Bulletin No. 2019–47

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
EHQH¿WV 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.
2QHFRPPHQWHUQRWHGWKDWWKLVGH¿QLtion of issuer in the proposed regulations
appears to be a reversal of position from
a statement in Notice 2018-41 that, according to the commenter, appropriately
SURSRVHGWRH[FOXGHD³UHLQVXUHULQDQLQdemnity 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.” In Notice 201841, the Treasury Department and the IRS
announced the intent to limit the information reporting obligations imposed under
§6050Y(b) to the life insurance company
that is responsible for administering the
FRQWUDFW LQFOXGLQJ SD\LQJ GHDWK EHQH¿WV
under the life insurance contract to reduce
the burden on reporting life insurance
companies and prevent duplicative reporting. Notice 2018-41 indicated that, 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.
Under the proposed regulations, alWKRXJK WKH GH¿QLWLRQ RI LVVXHU LV EURDG
enough that information reporting obligations could apply to a reinsurer, reporting obligations in practice will generally
be limited to the life insurance company
that is responsible for administering the
life insurance contract, or its designee.
The proposed regulations facilitate this
result by providing relief for an issuer
that is subject to reporting obligations,
but is not responsible for administer-

Bulletin No. 2019–47

ing the contract. For purposes of information reporting by the acquirer under
section 6050Y(a) and §1.6050Y-2 of the
proposed regulations, the “6050Y(a) issuer” to which the acquirer must furnish
an RPSS is the issuer responsible for administering the life insurance contract,
including collecting premiums and payLQJGHDWKEHQH¿WVXQGHUWKHFRQWUDFWRQ
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, reporting is required by any
“6050Y(b) issuer” that receives an RPSS
or notice of a transfer to a foreign person,
or its designee. See §1.6050Y-1(a)(8)(iii)
(A) and (B) of the proposed regulations.
Accordingly, with respect to reportable
policy sales, 6050Y(b) issuers responsible for reporting under section 6050Y(b)
and §1.6050Y-3 of the proposed regulations will generally be issuers responsible for administering the life insurance
contracts. No other issuer should receive
an RPSS. Also, with respect to a transfer
to a foreign person, if any issuer other
than the issuer responsible for administering the life insurance contract receives
notice of the transfer, it will not be considered a 6050Y(b) issuer if it provides
the 6050Y(b) issuer responsible for administering the life insurance contract
with notice of the transfer 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 proSRVHG UHJXODWLRQV 7KH ¿QDO UHJXODWLRQV
clarify that an issuer other than the issuer
responsible for administering the life insurance contract will not be considered a
6050Y(b) issuer if it received notice of a
transfer to a foreign person from the issuer responsible for administering the life
insurance contract. See §1.6050Y-1(a)
LLL% RI WKH ¿QDO UHJXODWLRQV $Gditionally, a 6050Y(b) issuer’s reporting
REOLJDWLRQ LV GHHPHG VDWLV¿HG LI WKH LQformation required by section 6050Y(b)
DQG †< RI WKH ¿QDO UHJXODWLRQV
is timely reported by any other 6050Y(b)
issuer. See †<E RI WKH ¿QDO
regulations.
The commenter recommended that
WKHGH¿QLWLRQRILVVXHUH[SUHVVO\H[FOXGH

1065

a reinsurer in an indemnity contract covering all or a portion of the risks that the
original issuer (or its continuing contract
administrator) might otherwise have incurred with respect to a life insurance
contract. The commenter stated that in
most instances of indemnity reinsurance
transactions, the original insurer continues to administer the life insurance
contracts, some or all of the underlying
risks of which the reinsurer may have
assumed, or alternatively, the parties select a third-party contract administrator
who assumes such a role, which includes
managing ownership changes and other
functions relating to contract administration and interfacing with policyholders.
The commenter asserted that if the approach in the proposed regulations is due
to any presumption that a reinsurer in an
indemnity reinsurance transaction may
be or may become privy to any information relating to transfers to domestic or
foreign persons, such presumptions are
misplaced.
7KH ¿QDO UHJXODWLRQV GR QRW DGRSW
the commenter’s proposal because a reinsurer in an indemnity contract bears
risk with respect to the life insurance
contracts reinsured, and is therefore an
issuer under section 6050Y(d). It is thus
QRWDSSURSULDWHWRFRPSOHWHO\H[FOXGHDQ
indemnity reinsurer from the possibility
of being an issuer for reporting purposes.
+RZHYHU WKH GH¿QLWLRQ RI <E LVVXHUXQGHUWKHSURSRVHGDQG¿QDOUHJXODWLRQVLVQDUURZHUWKDQWKHGH¿QLWLRQRILVsuer in section 6050Y(d) and, consistent
ZLWKWKHLQWHQWH[SUHVVHGLQ1RWLFH
41 to limit the information reporting obligations imposed under section 6050Y(b)
to the life insurance company that is responsible for administering the contract,
ZLOO JHQHUDOO\ H[FOXGH D UHLQVXUHU LQ DQ
indemnity contract from reporting obligations, as the commenter acknowledges. Furthermore, §1.6050Y-1(a)(8)(iii)
%RIWKH¿QDOUHJXODWLRQVSURYLGHVDQ\
reinsurer in an indemnity contract that
is not the issuer responsible for administering the life insurance contract, but
QRQHWKHOHVV IDOOV ZLWKLQ WKH GH¿QLWLRQ
of 6050Y(b) issuer, with a mechanism
to avoid that designation (by providing
notice and relevant information to the
6050Y(b) issuer responsible for administering the contract).

November 18, 2019

foreign persons to capture transfers that
may escape section 6050Y(a)(2) reporting
in the event that a foreign acquirer does
Section 6050Y(b) and §1.6050Y-3 of not comply with section 6050Y(a)(2) and
the proposed regulations generally re- suggested that the foreign indicia requirequire reporting by an issuer upon notice ment furthers this purpose by allowing
of a transfer of a life insurance contract an issuer to identify a foreign acquirer as
to a foreign person. The proposed regu- foreign based on information the acquirer
ODWLRQV GH¿QH ³QRWLFH RI D WUDQVIHU WR D provides to the issuer. This recommendaforeign person” to mean any notice of a tion is adopted in §1.6050Y-1(a)(10) of
transfer of a life insurance contract (that WKH¿QDOUHJXODWLRQV
is, a transfer of title to, possession of, or
legal ownership of the life insurance con- C. 'H¿QLWLRQRIHVWLPDWHRILQYHVWPHQWLQ
tract) received by a 6050Y(b) issuer. See the contract
§1.6050Y-1(a)(10) of the proposed reguInformal comments were received relations. The proposed regulations further
provide that notice of a transfer to a for- JDUGLQJWKHGH¿QLWLRQRIWKHWHUP³HVWLPDWH
eign person includes information provid- of investment in the contract” in the proHGIRUQRQWD[SXUSRVHVVXFKDVDFKDQJH posed regulations. The commenter asked
of address notice for purposes of sending whether the estimate of investment in the
statements or for other purposes, and in- contract with respect to a person includes
formation relating to loans, premiums, or any amount paid by the person for the life
GHDWKEHQH¿WVZLWKUHVSHFWWRWKHFRQWUDFW insurance contract or interest therein other
unless the 6050Y(b) issuer knows that no WKDQSUHPLXPVVXFKDVIRUH[DPSOHWKH
transfer of the contract has occurred or amount paid for the contract or interest
knows the transferee is a United States therein in a transfer for value) and whethperson. Id. For this purpose, a 6050Y(b) er information about any other payments
issuer may rely on a Form W-9, “Request must be provided to issuers and payors reIRU 7D[SD\HU ,GHQWL¿FDWLRQ 1XPEHU DQG porting the estimate of investment in the
&HUWL¿FDWLRQ´ RU D YDOLG VXEVWLWXWH IRUP FRQWUDFW7KHGH¿QLWLRQLQ†<D
that meets the requirements of §1.1441- (7)(ii) of the proposed regulations, which
1(d)(2) (substituting “6050Y(b) issuer” LVDGRSWHGZLWKRXWPRGL¿FDWLRQE\WKH¿for “withholding agent”), that indicates nal regulations, provides that the estimate
the transferee is a United States person. of investment in the contract is the aggregate amount of premiums paid for the conId.
2QH FRPPHQWHU H[SUHVVHG DSSUHFLD- tract by that person before that date, less
WLRQWKDWWKHSURSRVHGUHJXODWLRQVH[FOXGH the aggregate amount received under the
IURPWKHGH¿QLWLRQRIQRWLFHRIDWUDQVIHU contract by that person before that date to
to a foreign person situations in which the WKHH[WHQWVXFKLQIRUPDWLRQLVNQRZQWRRU
issuer knows that no transfer has occurred can reasonably be estimated by the issuer
or that the transferee is a United States or payor. Accordingly, the only amounts
person. The commenter requested that the paid by a person that are included in the
GH¿QLWLRQEHPRGL¿HGVRWKDWWKHREOLJD- estimate of investment in the contract with
tion for an issuer to report under section respect to that person are the premiums
6050Y(b) and §1.6050Y-3 of the proposed paid for the contract by that person. Issuers
regulations is not triggered unless the is- DQGSD\RUVRIUHSRUWDEOHGHDWKEHQH¿WVGR
suer receives notice of a transfer of a life not need information about other amounts
insurance contract to a foreign person that paid for a life insurance contract or interincludes foreign indicia. Such foreign est therein to determine the estimate of
indicia may include information provid- investment in the contract. Under section
HG IRU QRQWD[ SXUSRVHV VXFK DV D FKDQJH 6050Y(a)(2)(B) and §1.6050Y-2(d)(2)(i)
of address notice to a foreign residence $ RI WKH ¿QDO UHJXODWLRQV DQ DFTXLUHU
or mailing address for purposes of send- is not required to provide an issuer with
ing statements or for other purposes. The the amount of any reportable policy sale
commenter noted that section 6050Y(b) SD\PHQWZKHQIXO¿OOLQJLWVUHSRUWLQJREOLrequires issuers to identify transfers to gations under section 6050Y(a).
B. 'H¿QLWLRQRIQRWLFHRIDWUDQVIHUWRD
foreign person

November 18, 2019

1066

D. 'H¿QLWLRQRIUHSRUWDEOHSROLF\VDOH
payments
Under
section
6050Y(a)
and
§1.6050Y-2(a) of the proposed regulations, as a general matter, every person
that is an acquirer in a reportable policy
VDOHGXULQJDQ\FDOHQGDU\HDUPXVW¿OHD
separate information return with the IRS
for each reportable policy sale payment
recipient, including any seller that is a
reportable policy sale payment recipient.
A reportable policy sale payment recipiHQWLVGH¿QHGLQ†<DRIWKH
proposed regulations as any person that
receives a reportable policy sale payment
in a reportable policy sale, as well as any
broker or other intermediary that retains a
portion of the cash or other consideration
transferred in a reportable policy sale. Under section 6050Y(d)(1), the term “payment” means, with respect to any reportable policy sale, the amount of cash and
the fair market value of any consideration
transferred in the sale. A reportable policy
VDOHSD\PHQWLVGH¿QHGE\†<D
(15) of the proposed regulations as 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 polLF\VDOH7KH¿QDOUHJXODWLRQVFODULI\WKDW
consideration in this case means consideration reducible to a money value, which
is the standard used in §1.101-1(f)(5) of
WKHSURSRVHGDQG¿QDOUHJXODWLRQVIRUGHtermining whether a transfer of an interest
in a life insurance contract is a transfer for
valuable consideration. See §1.6050Y-1(a)
RIWKH¿QDOUHJXODWLRQV
The preamble to the proposed regulations requested information about the
types and timing of payments made by
acquirers in reportable policy sales, inFOXGLQJWKHW\SHVRIDQFLOODU\FRVWVDQGH[penses paid in reportable policy sales, the
UHFLSLHQWVRIWKRVHSD\PHQWVDQGH[LVWLQJ
reporting requirements applicable to those
payments. See 84 FR 11009, 11019. One
commenter on the proposed regulations
described ancillary payments made by an
acquirer in connection with the acquisition of a life insurance policy as including
HVFURZDJHQWIHHVDQGH[SHQVHVIHHVDQG

Bulletin No. 2019–47

H[SHQVHVRIVHFXULWLHVLQWHUPHGLDULHVIHHV
paid to companies that assist the acquirer
in evaluating a life insurance policy, fees
for policy services, origination fees, fees
WR OLIH H[SHFWDQF\ UHSRUW SURYLGHUV PLVcellaneous other administrative costs such
as mailing and courier charges, and legal
fees. The commenter asserted that these
are all normal and customary transaction
costs paid by the acquirer in the ordinary
course of its business in connection with
the routine process of acquiring a life insurance policy and that the aggregate of
such costs in each transaction is relatively
small in contrast to the aggregate amount
of the consideration paid to the seller of
the policy and the seller’s broker, if any.
The commenter stated that these minor
FRVWV DQG H[SHQVHV DUH SULPDULO\ DGPLQistrative in nature, and the IRS is already
receiving information regarding the payPHQW RI IHHV LQ FRQQHFWLRQ ZLWK H[LVWLQJ
reporting required under section 6041.
The commenter recommended that such
DQFLOODU\ FRVWV EH VSHFL¿FDOO\ H[FOXGHG
IURP WKH GH¿QLWLRQ RI UHSRUWDEOH SROLF\
sale payments.
Another commenter also recommendHGH[FOXGLQJDQFLOODU\IHHVIURPWKHGH¿nition of reportable policy sale payments.
Alternatively, the commenter suggested
that recipients of such ancillary fees could
EHH[FOXGHGIURPWKHGH¿QLWLRQRIUHSRUWable policy sale payment recipients. The
commenter stated that the sale of a single
life insurance contract from the insured
individual to a purchaser on the secondary market may involve several transfers
and implicate several potential recipients
of a reportable policy sale payment, as
WKDWWHUPLVGH¿QHGE\WKHSURSRVHGUHJulations. The commenter described the
parties that commonly receive ancillary
fees in connection with the sale of a life
insurance contract as including securities
intermediaries, escrow agents (including
separate sub-escrow agents), policy servicers, and other service providers. The
commenter asserted that these ancillary
fees already should be otherwise reported
to the IRS under other provisions of the
Code and Treasury Regulations and that
including these fees as reportable policy
VDOHSD\PHQWVDGGVDVLJQL¿FDQWDGPLQLVtrative burden to acquirers given the multitude of potential reportable policy sale
payment recipients.

Bulletin No. 2019–47

7KHGH¿QLWLRQRI³SD\PHQW´LQVHFWLRQ
6050Y(d)(4) is broad, and the legislative
history does not suggest that this term was
LQWHQGHG WR H[FOXGH DQ\ SD\PHQW PDGH
in a reportable policy sale, such as the
ancillary fees described by the commenters. Accordingly, the recommendations to
H[FOXGHDQFLOODU\IHHVIURPWKHGH¿QLWLRQ
RIUHSRUWDEOHSROLF\VDOHSD\PHQWVRUH[clude recipients of ancillary fees from the
GH¿QLWLRQ RI UHSRUWDEOH SROLF\ VDOH SD\ment recipients are not adopted. However,
after consideration of these comments, the
Treasury Department and the IRS have
determined that an acquirer that reports a
reportable policy sale payment made to a
person other than the seller under section
6041 or section 6041A will be deemed to
KDYH VDWLV¿HG LWV UHSRUWLQJ UHTXLUHPHQWV
under section 6050Y(a) and §1.6050Y RI WKH ¿QDO UHJXODWLRQV ZLWK UHVSHFW WR
that payment. See §1.6050Y-2(f)(2) of the
¿QDO UHJXODWLRQV 7KH 7UHDVXU\ 'HSDUWment and the IRS have also determined to
H[FOXGH IURP WKH GH¿QLWLRQ RI UHSRUWDEOH
policy sale payment recipient any person,
other than the seller, that receives aggregate payments of less than $600 with respect to that reportable policy sale. See
†<DLL RI WKH ¿QDO UHJXODtions.

direct acquisition of the interest) in a reportable policy sale. Section 1.6050Y-1(a)
(6) of the proposed regulations adopts by
FURVVUHIHUHQFH WKH GH¿QLWLRQ RI ³LQWHUHVW
in a life insurance contract” set forth in
§1.101-1(e) of the proposed regulations.
Section 6050Y(a) imposes reporting requirements on an acquirer in a reportable
policy sale.
One commenter on Notice 2018-41
UHFRPPHQGHG WKDW WKH GH¿QLWLRQ RI DFquirer be limited to any person who acquires a direct or indirect economic interest in a life insurance contract and not
include any person who acquires title to a
life insurance contract as an agent or intermediary for another person and whose
sole economic interest in the life insurance contract is security for the payment
of a fee to act as an agent or intermediary. For this purpose, the commenter noted, a partnership or a trust (other than a
grantor trust) would not be treated as an
agent or intermediary. The commenter
observed that, in many transactions that
will be treated as reportable policy sales,
title to the life insurance contract is held in
the name of a securities intermediary, but
EHQH¿FLDORZQHUVKLSRIWKHSROLF\LVKHOG
by an investor. The commenter asserted
that, although the securities intermediary may, in a given case, have a portion
8. Comments and Changes Relating to
of the information required to be reported
§1.6050Y-2 of the Proposed Regulations
by section 6050Y, burdening the securities
intermediary with a reporting obligation is
Section 6050Y(a) requires reporting beyond the scope of its duties.
of payments made by an acquirer in a reCommenting on the proposed regulaportable policy sale. Section 1.6050Y-2(a) tions, this commenter again recommended
of the proposed regulations sets forth the that securities intermediaries should not be
requirement of information reporting ap- deemed to be acquirers in life settlement
plicable to acquirers in reportable policy transactions because they are not likely to
sales under section 6050Y(a)(1) and de- know, among other things, the purchase
scribes the information that must be re- price paid to the seller, fees paid to a life
ported. This section of this Summary of settlement broker, or ancillary fees paid in
&RPPHQWV DQG ([SODQDWLRQ RI 5HYLVLRQV connection with the acquisition of a polidiscusses comments that generally relate cy. The commenter suggested that, if secuto §1.6050Y-2 of the proposed regula- rities intermediaries are deemed acquirers,
tions.
the regulations could instead provide for
elective, substitute reporting by the benA. 5HTXHVWVWROLPLWWKHGH¿QLWLRQRI
H¿FLDO RZQHU RI WKH OLIH LQVXUDQFH SROLF\
DFTXLUHURUH[SDQGXQL¿HGUHSRUWLQJ
under a securities account agreement. In
option
other words, for a transaction in which a
securities intermediary is involved, either
Under §1.6050Y-1(a)(1) of the pro- the securities intermediary as the legal tiposed regulations, an “acquirer” is any WOH KROGHU RU WKH EHQH¿FLDO RZQHU RI WKH
person that acquires an interest in a life life insurance policy under the securities
insurance contract (through a direct or in- account agreement could be responsi-

1067

November 18, 2019

ble for the reporting required by section
6050Y(a) and §1.6050Y-2 of the proposed
regulations.
In response to these comments,
†<E RI WKH ¿QDO UHJXODWLRQV
H[SDQGV WKH VLWXDWLRQV LQ ZKLFK DFTXLUHUV PD\ XVH XQL¿HG UHSRUWLQJ 8QGHU
§1.6050Y-2(b) of the proposed regulations, the reporting requirement in
§1.6050Y-2(a) of the proposed regulations
applies to each acquirer in a series of prearranged transfers of an interest in a life insurance contract. However, §1.6050Y-2(b)
of the proposed regulations provides for
³XQL¿HG UHSRUWLQJ´ ,Q D VHULHV RI SUHDUranged transfers, an acquirer’s reporting
REOLJDWLRQLVGHHPHGVDWLV¿HGLIWKHLQIRUmation required by §1.6050Y-2(a) of the
proposed regulations 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 conWUDFWRU2QHFRPPHQWHUH[SUHVVHGVXSSRUW
for the concept set forth in §1.6050Y-2(b)
RIWKHSURSRVHGUHJXODWLRQVWKDWDXWKRUL]HVEXWGRHVQRWPDQGDWHXQL¿HGUHSRUWLQJ
LQFHUWDLQVLWXDWLRQV7KH¿QDOUHJXODWLRQV
UHWDLQ WKLV DSSURDFK RI DXWKRUL]LQJ EXW
QRW PDQGDWLQJ XQL¿HG UHSRUWLQJ LQ FHUtain situations. Additionally, in response
to comments requesting elective, substiWXWH UHSRUWLQJ E\ WKH EHQH¿FLDO RZQHU RI
the life insurance policy under a securities
account agreement for a securities intermediary with reporting obligations, the
¿QDO UHJXODWLRQV H[SDQG WKH DSSOLFDELOLW\
of this provision to include acquirers in simultaneous transfers, as well as acquirers
in a series of prearranged transfers.
Another commenter recommended that
WKH GH¿QLWLRQ RI DFTXLUHU EH QDUURZHG WR
include only those acquirers that will ultiPDWHO\KROGEHQH¿FLDORZQHUVKLSRIDOLIH
insurance contract after a transfer, thus
H[FOXGLQJ WUDQVLWRU\ LQWHUHVW KROGHUV IURP
WKHGH¿QLWLRQRIDFTXLUHU7KHFRPPHQWHU
stated that, under a plain reading of §1.1011(e)(1) of the proposed regulations, bene¿FLDORZQHUVDVZHOODVQRPLQHHVDQGDQ\
other person that holds legal title to any part
RIDEHQH¿FLDOLQWHUHVWLQDQ\OLIHLQVXUDQFH
contract for any amount of time during the
course of the transaction would be subject
to the acquirer reporting requirements of
the proposed regulations. The comment-

November 18, 2019

HU VXJJHVWHG WKDW WKH GH¿QLWLRQ PD\ EH
over-inclusive given the realities of the life
settlement industry including, for instance,
the fact that service providers and their respective securities intermediaries may transitorily hold legal title to a life insurance
contract during the course of a transaction.
Acknowledging that the proposed regulaWLRQVSURYLGHDXQL¿HGUHSRUWLQJRSWLRQWKH
commenter objected to each such transitory
legal title holder being subject to the reporting requirements described in §1.6050Y-2
of the proposed regulations, despite likely
not having access to all the information reTXLUHG WR VXI¿FLHQWO\ GLVFKDUJH LWV UHSRUWing obligations. This recommendation is
QRWDGRSWHGLQWKH¿QDOUHJXODWLRQVEHFDXVH
WKHRSWLRQRIXQL¿HGUHSRUWLQJLVDYDLODEOH
in the situations described by the commenter and it should be feasible, as part of the
acquisition transaction, to assign section
6050Y reporting responsibilities to a party with the information needed to satisfy
the reporting requirements described in
†<RIWKH¿QDOUHJXODWLRQV
B. Request to reduce or eliminate
reporting on tertiary market transactions
One commenter asked that the Treasury
Department and the IRS consider whether
reporting requirements imposed under section 6050Y are appropriate to transactions
in the tertiary market (that is, with respect
to sales of life insurance contract interests
between investors, after the contract has
been purchased from the original policyholder). The commenter asserted that the
parties (that is, the acquirers and sellers)
involved in tertiary transactions in the life
settlement industry are already highly regulated, and the reporting requirements under section 6050Y are unduly cumbersome
JLYHQWKDWWKHWD[LQIRUPDWLRQVRXJKWE\WKH
IRS is already included in such parties’ auGLWHG ¿QDQFLDO VWDWHPHQWV7KLV UHTXHVW WR
eliminate or reduce reporting obligations
under section 6050Y with respect to tertiary market transactions is not adopted in the
¿QDO UHJXODWLRQV 6HFWLRQ < UHTXLUHV
reporting with respect to reportable policy
VDOHV7KDWWHUPLVEURDGO\GH¿QHGE\VHFtion 101(a)(3) as the acquisition of an interest in a life insurance contract, directly or
indirectly, if the acquirer has no substantial
IDPLO\ EXVLQHVV RU ¿QDQFLDO UHODWLRQVKLS
with the insured apart from the acquirer’s

1068

interest in such life insurance contract.
Tertiary market transactions generally fall
ZLWKLQWKLVGH¿QLWLRQDQGWKHUHIRUHDUHUHquired to be reported.
This commenter also suggested that in
WKHWHUWLDU\PDUNHWEHQH¿FLDORZQHUVKLSRI
a life insurance policy may be transferred
EHWZHHQGLIIHUHQWEHQH¿FLDORZQHUVXQGHU
separate securities account agreements with
the same securities intermediary, without
DQ\ RZQHUVKLS RU EHQH¿FLDU\ FKDQJHV RQ
the books and records of the issuer, so the
securities intermediary might be both the
seller and the acquirer of the policy interest
for purposes of section 6050Y reporting.
However, even though the securities intermediary does not transfer its interest in the
life insurance contract as the legal title holder in the transfer described, the previous
EHQH¿FLDORZQHUWUDQVIHUVLWVLQWHUHVWWRWKH
QHZEHQH¿FLDORZQHU8QGHUWKH¿QDOUHJulations, as under the proposed regulations,
WKHQHZEHQH¿FLDORZQHULVWKHDFTXLUHURI
an interest in the life insurance contract under §1.101-1(e)(3)(i) and §1.6050Y-1(a)(1)
DQGDQGWKHSUHYLRXVEHQH¿FLDORZQHU
is the seller under §1.6050Y-1(a)(18)(i),
ZKLFKGH¿QHV³VHOOHU´WRLQFOXGHDQ\SHUson 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.
C. 5HTXHVWWRDOORZJRRGIDLWKHIIRUW
reporting
One commenter on the proposed
regulations observed that a situation
could arise in which a person acquires a
non-controlling interest in an entity that
holds direct interests in life insurance contracts, and such entity has neither the obligation nor the willingness to provide the
indirect acquirer with information necessary for the indirect acquirer to determine
whether it is subject to the reporting requirements or to satisfy any reporting obligations. The commenter suggested that
WKLV SUREOHP LV H[DFHUEDWHG ZKHQ WKHUH
are tiers of entities between the indirect
acquirer and the entity holding direct interests in life insurance contracts. The
commenter recommended that an indirect
acquirer be considered to have complied
with the reporting requirements of section
6050Y(a) and §1.6050Y-2 of the proposed
regulations if it demonstrates that it has in

Bulletin No. 2019–47

good faith requested information required
to comply with the reporting requirements
from the relevant entity or entities and
was unable to obtain such information by
providing to the IRS: (i) the information it
does have, (ii) a statement of its efforts to
collect any missing data, and (iii) the identifying information on the entity through
which it acquired an indirect interest in a
life insurance contract or contracts.
Sections 1.6050Y-2(g)(1) and (2)
cross-reference section 6724(a) and
§301.6724-1 for the waiver of a penalty
IRUIDLOXUHWR¿OHWLPHO\DFRUUHFWLQIRUPDtion return or furnish a correct statement
under section 6050Y and §1.6050Y-2 if
the failure is due to reasonable cause and
is not due to willful neglect. The penalty
PD\EHZDLYHGLIWKH¿OHUHVWDEOLVKHVWKHUH
DUHVLJQL¿FDQWPLWLJDWLQJIDFWRUVZLWKUHspect to the failure (such as the fact that
WKH¿OHUKDGQRWSUHYLRXVO\KDGWKLV¿OLQJ
obligation, or has a history of complying
with information reporting obligations),
or that the failure was due to events be\RQGWKH¿OHU¶VFRQWURO(YHQWVEH\RQGWKH
¿OHU¶V FRQWUROPD\LQFOXGHWKHDFWLRQVRI
a third party who has information needed
E\ WKH ¿OHU7KH ¿OHU PXVW VKRZ WKDW WKH
failure was due to the failure of another
person, who is required to provide inforPDWLRQWRWKH¿OHUWKDWLVQHFHVVDU\IRUWKH
¿OHUWRFRPSO\ZLWKLQIRUPDWLRQUHSRUWLQJ
requirements, to provide information or to
provide correct information. In addition, a
¿OHUVHHNLQJDZDLYHUEDVHGRQUHDVRQDEOH
cause must establish that it acted in a responsible manner both before and after the
IDLOXUH7KH¿OHUPXVWH[HUFLVHUHDVRQDEOH
FDUH LQ GHWHUPLQLQJ LWV ¿OLQJ REOLJDWLRQV
LQFOXGLQJUHTXHVWLQJH[WHQVLRQVWRSUHYHQW
failures, preventing impediments to failures, and rectifying failures when discovered. These penalty relief procedures are
available to acquirers and may apply to
acquirers in the situation described by the
FRPPHQWHU$FFRUGLQJO\WKH¿QDOUHJXODtions do not adopt the change suggested
by the commenter.
9. Comments Relating to §1.6050Y-3 of
the Proposed Regulations
Section 6050Y(b) imposes reporting
requirements on an issuer of a life insurance contract upon the receipt of a written
statement furnished by an acquirer under

Bulletin No. 2019–47

section 6050Y(a)(2), or upon any notice
of the transfer of a life insurance contract
to a foreign person. Section 1.6050Y-3
of the proposed regulations sets forth the
requirement of information reporting applicable to issuers under section 6050Y(b)
and describes the information that must be
reported. This section of this Summary of
&RPPHQWV DQG ([SODQDWLRQ RI 5HYLVLRQV
discusses comments that generally relate
to §1.6050Y-3 of the proposed regulations.
Section 1.6050Y-3(d)(1) of the proposed regulations requires an issuer to
furnish a statement to a seller. Section
1.6050Y-3(d)(2) of the proposed regulations provides that such statement generally 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. This
due date was adopted in response to comments on Notice 2018-41. The proposed
regulations also provide that 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, the statement generally must be furnished by the
date thirty days after the date notice is received. See §1.6050Y-3(d)(2) of the proposed regulations.
2QH FRPPHQWHU H[SUHVVHG DSSUHFLDtion regarding the adoption of the February 15 due date and the relief provided to
6050Y(b) issuers that do 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. The commenter asked that a similar thirty-day period be provided if the
6050Y(b) issuer does not receive an RPSS
until after January 31 of the calendar year
following the year in which the reportable
policy sale occurred. If a 6050Y(b) issuer
that receives an RPSS after the January 31
due date and before the February 15 due
date is unable to furnish the required statement to the seller by the February 15 due
date because of this delay, the 6050Y(b)
issuer generally may request, before the
)HEUXDU\GXHGDWHDQH[WHQVLRQRIWLPH
to furnish the statement, pursuant to IRS
SURFHGXUHV )RU H[DPSOH SURFHGXUHV IRU
UHTXHVWLQJVXFKDQH[WHQVLRQDUHFXUUHQWO\
described in the “General Instructions for
Certain Information Returns.” Additional-

1069

ly, the late furnishing of an RPSS by an
acquirer to a 6050Y(a) issuer would generally constitute an event beyond the issuer’s control for purposes of determining
whether the issuer is eligible for penalty
relief for failure, as a 6050Y(b) issuer,
to timely furnish a statement to the seller
named in the RPSS. See §§1.6050Y-3(g)
(2), 301.6722-1, and 301.6724-1. Therefore, the Treasury Department and the IRS
have determined not to adopt this recommendation.
10. Comments and Changes Relating to
§1.6050Y-4 of the Proposed Regulations
Section 6050Y(c) imposes reporting
requirements on every person who makes
D SD\PHQW RI UHSRUWDEOH GHDWK EHQH¿WV
GXULQJDQ\WD[DEOH\HDU6HFWLRQ<
4 of the proposed regulations sets forth the
requirement of information reporting applicable to payors of reportable death benH¿WVXQGHUVHFWLRQ<FDQGGHVFULEHV
the information that must be reported.
This section of this Summary of ComPHQWV DQG ([SODQDWLRQ RI 5HYLVLRQV GLVcusses comments that generally relate to
§1.6050Y-4 of the proposed regulations.
A. Gratuitous transfers
As discussed in section 2.B of this
6XPPDU\ RI &RPPHQWV DQG ([SODQDWLRQ
of Revisions, one commenter requested
DQH[FHSWLRQIURPWKHGH¿QLWLRQRIUHSRUWable policy sale for any gratuitous transfer
of an interest in a life insurance contract.
The commenter asserted that treating gratuitous transfers as reportable policy sales
creates unnecessary and confusing reporting requirements under section 6050Y for
gift transfers. The change requested by
WKHFRPPHQWHULVQRWDGRSWHGLQWKH¿QDO
regulations because the reporting required
under section 6050Y for gift transfers is
OLPLWHGXQGHUWKHSURSRVHGDQG¿QDOUHJulations. However, in response to these
comments, the reporting required under
section 6050Y for gift transfers is further
limited by the addition of §1.6050Y-4(e)
RIWKH¿QDOUHJXODWLRQVZKLFKSURYLGHV
WKDWDSD\RURIUHSRUWDEOHGHDWKEHQH¿WVLV
QRWUHTXLUHGWR¿OHDQLQIRUPDWLRQUHWXUQ
XQGHU †<D RI WKH ¿QDO UHJXODtions with respect to the reportable death
EHQH¿WV LI WKH SD\RU QHYHU UHFHLYHG DQG

November 18, 2019

has no knowledge of any issuer having received, a related RPSS.
The commenter asserted that the reporting requirements under section 6050Y
will result in an acquirer having to send a
Form 1099-LS for transfers that are mere
gifts, and that this will be confusing to the
parties involved, making it appear that the
WUDQVIHUZLOOKDYHWD[DEOHFRQVHTXHQFHVWR
both the donor, who will receive a Form
1099-SB, and the gift recipient, who will
receive a Form 1099-R (when a death benH¿WLVSDLG
However, with respect to a gratuitous
transfer, there is no requirement to provide
a Form 1099-SB to the donor. Section
1.6050Y-2(a) of the proposed regulations
requires the acquirer (the gratuitous transferee in a gratuitous transfer) to undertake
reporting with respect to any reportable
policy sale payment recipient, including
any seller that is a reportable policy sale
payment recipient. A gratuitous transferor will not receive any reportable policy
sale payment and therefore will not be a
reportable policy sale payment recipient.
Accordingly, a gratuitous transferee will
QRW EH UHTXLUHG WR ¿OH D )RUP /6
with respect to the gratuitous transferor, to
furnish a statement to the gratuitous transferor, or to furnish an RPSS to the issuer.
See §1.6050Y-2(a) and (d) of the proposed
regulations. Because a gratuitous transferee is not required to furnish an RPSS
to the issuer, the issuer should not be reTXLUHGWR¿OHD)RUP6%RUIXUQLVKD
statement to the “seller” (in this case, the
gratuitous transferor) as a result of a gratuitous transfer. See §1.6050Y-3(a) of the
proposed regulations.
Because amounts paid by reason of the
death of the insured under a life insurance
contract that are attributable to an interest in the contract that was transferred
in a reportable policy sale are reportable
GHDWK EHQH¿WV XQGHU †<D
of the proposed regulations, the proposed
regulations technically would require
reporting under section 6050Y(c) when
GHDWKEHQH¿WVDUHSDLGZLWKUHVSHFWWRDQ
interest in a life insurance contract that
was transferred in a gratuitous reportable
policy sale. See 1.6050Y-4(a) and (c).
The issuer therefore could be required
under the proposed regulations to provide
the gratuitous transferee with a statement
(for instance, a copy of the Form 1099-R)

November 18, 2019

if the gratuitous transferee is the reportDEOH GHDWK EHQH¿WV SD\PHQW UHFLSLHQW
See 1.6050Y-4(c). The commenter asserted that this would confuse the Form
1099-R recipient, who now possesses a
Form 1099-R reporting a gross distribuWLRQDPRXQWWKDWLQGLFDWHVDSRVVLEOHWD[DEOH GLVWULEXWLRQ ZKHQ QRQH H[LVWV 7KH
commenter also asserted that inclusion of
the estimate of investment in the contract
on the Form 1099-R will further confuse
the gift recipient because it would indiFDWHWRDWD[SD\HUWKDWWKH\KDYHDWD[DEOH
gain based on the difference between the
gross distribution amount and the basis
amount reported on the form.
However, the distribution to the gift
UHFLSLHQW PD\ EH WD[DEOH 8QGHU †
1(b)(2)(i) of the proposed regulations, the
amount of the proceeds attributable to the
LQWHUHVW WKDW LV H[FOXGDEOH IURP JURVV LQcome under section 101(a)(1) is limited
to the sum of the amount of the proceeds
attributable to the gratuitously transferred
LQWHUHVWWKDWZRXOGKDYHEHHQH[FOXGDEOH
by the transferor if the transfer had not
occurred, and the premiums and other
amounts subsequently paid by the transferee with respect to the interest. Thus, for
H[DPSOHLIDQLQWHUHVWLQDOLIHLQVXUDQFH
contract was transferred for value in a reportable policy sale, and then transferred
DJDLQDVDJLIWWKHGHDWKEHQH¿WH[FOXVLRQ
would be limited to the consideration paid
in the reportable policy sale, plus subsequent premiums paid.
As a practical matter, however, if the
only reportable policy sale of an interest
in a life insurance contract is a gratuitous
reportable policy sale, and the issuer does
not receive an RPSS, the issuer would
QRW NQRZ WKDW WKH GHDWK EHQH¿WV DUH DWtributable to an interest in a life insurance
contract transferred in a reportable policy
sale, and thus would not be on notice to
do the reporting technically required under §1.6050Y-4(a) and (c) of the proposed
regulations. Accordingly, in response to
these comments, §1.6050Y-4(e)(3) of
WKH ¿QDO UHJXODWLRQV SURYLGHV WKDW D SD\RU RI UHSRUWDEOH GHDWK EHQH¿WV LV QRW UHTXLUHGWR¿OHDQLQIRUPDWLRQUHWXUQXQGHU
†<D RI WKH ¿QDO UHJXODWLRQV
with respect to the reportable death bene¿WVLIWKHSD\RUQHYHUUHFHLYHGDQGKDVQR
knowledge of any issuer having received,
a related RPSS.

1070

B. Other comments relating to
§1.6050Y-4
Section 1.6050Y-4(a)(4) of the proposed regulations requires that “the gross
amount of payments made to the reportDEOH GHDWK EHQH¿WV SD\PHQW UHFLSLHQW
GXULQJ WKH WD[DEOH \HDU´ EH UHSRUWHG E\
the payor. One commenter requested that
“payments made” be replaced by “reportDEOH GHDWK EHQH¿WV SDLG´ WR FODULI\ WKDW
“gross amount of payments” are death
EHQH¿WSD\PHQWV7KHFRPPHQWHUDVVHUWed that the broader term “payments made”
could be confused to include items such
as interest paid on delayed claims, which
is reportable on Form 1099-INT, “Interest Income,” or a payment to the policy
owner resulting from a partial surrender in
the same year as the insured’s death. This
UHFRPPHQGDWLRQ LV DGRSWHG LQ WKH ¿QDO
regulations.
Section 1.6050Y-4(d) of the proposed
regulations requires a payor of reportable
GHDWK EHQH¿WV WKDW ¿OHV D UHWXUQ RU IXUnishes a statement reporting the payment
RI WKH UHSRUWDEOH GHDWK EHQH¿WV WR ¿OH D
corrected return or furnish a corrected
statement after receiving notice of rescission of the reportable policy sale. The
commenter indicated that, if a payor has
DOUHDG\SDLGWKHGHDWKEHQH¿WSXUVXDQWWR
the change in ownership, the payor may
not be contractually required, or may not
DWWHPSW WR UHFODLP VXFK EHQH¿W DIWHU D
rescission. The commenter asserted that
SD\RUVRIGHDWKEHQH¿WVJHQHUDOO\GRQRW
¿OHFRUUHFWHG)RUPV5LQVLPLODULQstances because the payment was, in fact,
made to the initial recipient. The commenter recommended that §1.6050Y-4(d)
RIWKHSURSRVHGUHJXODWLRQVEHPRGL¿HGWR
provide that the payor is required to correct the Form 1099-R only if the reportDEOH GHDWK EHQH¿W SD\PHQW ZDV UHWXUQHG
to the payor. In response to this comment,
†<GRIWKH¿QDOUHJXODWLRQVUHTXLUHVDSD\RURIUHSRUWDEOHGHDWKEHQH¿WV
WKDW¿OHVDUHWXUQRUIXUQLVKHVDVWDWHPHQW
reporting the payment of the reportable
GHDWKEHQH¿WVWR¿OHDFRUUHFWHGUHWXUQRU
furnish a corrected statement within 15
days after recovering any portion of the
UHSRUWDEOH GHDWK EHQH¿WV SD\PHQW IURP
WKHUHSRUWDEOHGHDWKEHQH¿WVSD\PHQWUHcipient as the result of the rescission of a
reportable policy sale.

Bulletin No. 2019–47

The commenter also requested that the
¿QDOUHJXODWLRQVFODULI\WKDWWKHUHSRUWDEOH
GHDWK EHQH¿WV SDLG WR D IRUHLJQ SHUVRQ
should be reported on Form 1042-S, “Foreign Person’s U.S. Source Income Subject to Withholding,” instead of on Form
1099-R. Under §1.6050Y-4(e)(1) of the
proposed regulations, a payor generally
is not required to report reportable death
EHQH¿WVSDLGWRDIRUHLJQSHUVRQRQ)RUP
1099-R if the payor obtains documentation in accordance with §1.1441-1(e)(1)
(ii) upon which the payor may rely to treat
WKHUHSRUWDEOHGHDWKEHQH¿WVSD\PHQWUHFLSLHQWDVDIRUHLJQEHQH¿FLDORZQHURIWKH
UHSRUWDEOH GHDWK EHQH¿WV +RZHYHU WKLV
H[FHSWLRQGRHVQRWDSSO\LID<ELVVXHUREWDLQVD)RUP:(&,³&HUWL¿FDWH
of Foreign Person’s Claim that Income
is Effectively Connected with the Conduct of a Trade or Business in the United States.” Accordingly, if the payment
RI UHSRUWDEOH GHDWK EHQH¿WV WR D IRUHLJQ
EHQH¿FLDO RZQHU LV LQFRPH HIIHFWLYHO\
connected with the foreign person’s trade
or business in the United States, the payor
may be required to report the payment on
both the Form 1042-S in accordance with
§1.1461-1(c) and the Form 1099-R in accordance with §1.6050Y-4 of the proposed
regulations. In response to this comment,
WKHUHIRUH †<H RI WKH ¿QDO
regulations does not include the limitation
RQWKHXVHRIWKHH[FHSWLRQIRUUHSRUWDEOH
GHDWKEHQH¿WVWKDWDUHLQFRPHHIIHFWLYHO\
connected with the conduct of a trade or
business in the United States, but instead
references other due diligence or reporting
requirements that may apply to a payor
WKDWUHOLHVRQWKHH[FHSWLRQLQFOXGLQJUHporting requirements under §1.1461-1(c).
$V D UHVXOW WKH ¿QDO UHJXODWLRQV GR QRW
UHTXLUH UHSRUWDEOH GHDWK EHQH¿WV SDLG WR
a foreign person that must be reported on
Form 1042-S to also be reported on Form
1099-R.
11. Comments and Changes Relating to
Penalties
Sections 1.6050Y-2(g), 1.6050Y-3(g),
and 1.6050Y-4(f) of the proposed regulations cross-reference sections 6721 and
6722 and the regulations thereunder for
provisions relating to the penalties providHGIRUIDLOXUHWR¿OHWLPHO\DFRUUHFWLQIRUmation return or furnish timely a correct

Bulletin No. 2019–47

information return required under section
6050Y and §§1.6050Y-2, 1.6050Y-3, or
1.6050Y-4 of the proposed regulations.
Sections 1.6050Y-2(g), 1.6050Y-3(g), and
1.6050Y-4(f) of the proposed regulations
also cross-reference §301.6724-1 for the
waiver of a penalty if the failure is due to
reasonable cause and is not due to willful
neglect.
One commenter asked for permanent
penalty relief for issuers unable to meet
WKH ¿OLQJ GXH GDWH IRU UHDVRQV EH\RQG
the control of the issuer. The commenter
stated that such relief is available under
section 6724(a), which allows for waivers
for reasonable cause for reporting failures. The commenter suggested that the
requested relief could be accomplished
through guidance that designates late receipt of a Form 1099-LS (serving as an
RPSS) as establishing reasonable cause
for purposes of section 6724. To identify
reports eligible for such relief, the comPHQWHUVXJJHVWHGWKDWDFKHFNER[FRXOG
be added to Form 1099-SB for “late receipt of Form 1099-LS,” thereby avoiding
WKHLQHI¿FLHQFLHVDQGFRVWVDVVRFLDWHGZLWK
waiver and abatement procedures. The
commenter did not provide any reason
to anticipate that many acquirers will fail
to timely furnish statements to 6050Y(a)
issuers as required by section 6050Y(a)
and §1.6050Y-2(d)(2). Accordingly, the
Treasury Department and the IRS have
determined that the normal penalty relief
procedures, as described in section 9 of
WKLV6XPPDU\RI&RPPHQWVDQG([SODQDWLRQRI5HYLVLRQVVKRXOGEHVXI¿FLHQWDQG
have not adopted the commenter’s recommendation.

2018, and on or before October 31, 2019,
†<E RI WKH ¿QDO UHJXODWLRQV
provides transition relief as follows:
(1) Statements required to be furnished
to issuers under section 6050Y(a)(2) and
§1.6050Y-2(d)(2)(i) must be furnished
by the later of the applicable deadline set
forth in §1.6050Y-2(d)(2)(ii) or December
30, 2019.
(2) Statements required to be furnished to reportable policy sale payment
recipients under section 6050Y(a)(2) and
§1.6050Y-2(d)(1)(i) must be furnished
by the later of the applicable deadline set
forth in §1.6050Y-2(d)(1)(ii) or February
28, 2020.
(3) Statements required to be furnished
to sellers under section 6050Y(b)(2) and
§1.6050Y-3(d)(1) must be furnished by
the later of the applicable deadline set
forth in §1.6050Y-3(d)(2) or February 28,
2020.
(4) Statements required to be furnished
WR UHSRUWDEOH GHDWK EHQH¿WV SD\PHQW UHcipients under section 6050Y(c)(2) and
§1.6050Y-4(c)(1) must be furnished by
the later of the applicable deadline set
forth in §1.6050Y-4(c)(2) or February 28,
2020.
 5HWXUQV UHTXLUHG WR EH ¿OHG XQGHU
section 6050Y(a)(1) and §1.6050Y-2(a),
section 6050Y(b)(1) and §1.6050Y-3(a),
and section 6050Y(c)(1) and §1.6050Y-4
PXVW EH ¿OHG E\ WKH ODWHU RI WKH DSSOLFDble deadline set forth in §1.6050Y-2(c),
§1.6050Y-3(c), and §1.6050Y-4(b) or
February 28, 2020.
Special Analyses

This regulation is not subject to review
XQGHU VHFWLRQ E RI ([HFXWLYH 2UGHU
12866 pursuant to the Memorandum of
Section 1 of this Summary of Com- Agreement (April 11, 2018) between the
PHQWV DQG ([SODQDWLRQ RI 5HYLVLRQV GH- 7UHDVXU\ 'HSDUWPHQW DQG WKH 2I¿FH RI
scribes the applicability dates for §1.101- Management and Budget regarding reE WKURXJK J RI WKH ¿QDO UHJXODWLRQV YLHZRIWD[UHJXODWLRQV
and §§1.6050Y-1 through 1.6050Y-4 of
WKH¿QDOUHJXODWLRQV
3DSHUZRUN5HGXFWLRQ$FW
As described in section 1 of this SumPDU\RI&RPPHQWVDQG([SODQDWLRQRI5HThe collection of information conYLVLRQVWKH¿QDOUHJXODWLRQVSURYLGHWUDQ- WDLQHG LQ WKH ¿QDO UHJXODWLRQV KDV EHHQ
sition relief as set forth in §1.6050Y-1(b) UHYLHZHG DQG DSSURYHG E\ WKH 2I¿FH RI
of the proposed regulations, with some Management and Budget in accordance
PRGL¿FDWLRQV )RU UHSRUWDEOH SROLF\ with the Paperwork Reduction Act of
sales and payments of reportable death 1995 (44 U.S.C. 3507(d)) under OMB
EHQH¿WV RFFXUULQJ DIWHU 'HFHPEHU  Control Numbers 1545-0119, 1545-1621,
Applicability Dates

1071

November 18, 2019

and 1545-2281. In general, the collecWLRQ RI LQIRUPDWLRQ LQ WKH ¿QDO UHJXODtions is required under section 6050Y
of the Code: (1) The requirement under
†< RI WKH ¿QDO UHJXODWLRQV IRU
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
WKH¿QDOUHJXODWLRQVIRUDQLVVXHUWRUHSRUW
certain information about transferors of
life insurance contracts is required under
section 6050Y(b); and (3) the requirement
XQGHU†<RIWKH¿QDOUHJXODWLRQV
for a payor to report certain information
about payments of reportable death benH¿WV LV UHTXLUHG XQGHU VHFWLRQ <F
6HFWLRQ<DRIWKH¿QDOUHJXlations also requires 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
(capital or ordinary) of all or a portion of
WKHVHOOHU¶VWD[DEOHLQFRPHIURPWKHVDOH
of the life insurance contract. Section
<I RI WKH ¿QDO UHJXODWLRQV
FRQWDLQV UHSRUWLQJ H[FHSWLRQV IRU FHUWDLQ
IRUHLJQ EHQH¿FLDO RZQHUV 7R GHWHUPLQH
TXDOL¿FDWLRQ IRU WKHVH UHSRUWLQJ H[FHSWLRQV†<IRIWKH¿QDOUHJXlations requires that certain foreign benH¿FLDO RZQHUV SURYLGH D )RUP :(&,
to the 6050Y(b) issuer. This information
is necessary to document whether the reSRUWLQJH[FHSWLRQLQ†<IRI
WKH¿QDOUHJXODWLRQVDSSOLHVLQDSDUWLFXODU
situation.
For purposes of the Paperwork Reduction Act, the burden associated with
the collection of information contained
in section 6050Y(a) and §1.6050Y-2 of
WKH ¿QDO UHJXODWLRQV LV UHÀHFWHG LQ WKH
IRS Form 1099-LS (OMB control number 1545-2281). For purposes of the
Paperwork Reduction Act, the burden
associated with the collection of information contained in section 6050Y(b) and
†<RIWKH¿QDOUHJXODWLRQVLVUHÀHFWHG LQ WKH ,56 )RUP 6% 20%
control number 1545-2281). For purposes
of the Paperwork Reduction Act, the burden associated with the collection of information contained in section 6050Y(c)

November 18, 2019

DQG†<RIWKH¿QDOUHJXODWLRQVLV
UHÀHFWHGLQWKH,56)RUP520%
Control Number 1545-0119). For purposes of the Paperwork Reduction Act, the
burden associated with the collection of
information contained in §1.6050Y-3(f)
RIWKH¿QDOUHJXODWLRQVZLOOEHUHÀHFWHG
in the IRS Form W-8ECI (OMB Control
Number 1545-1621), when the burden is
UHYLVHGWRUHÀHFWWKHDGGLWLRQDOFROOHFWLRQ
of information in §1.6050Y-3(f)(1) of the
¿QDOUHJXODWLRQV
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
WKH 2I¿FH RI 0DQDJHPHQW DQG %XGJHW
Books and records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
ODZ*HQHUDOO\WD[UHWXUQVDQGWD[UHWXUQ
LQIRUPDWLRQ DUH FRQ¿GHQWLDO DV UHTXLUHG
by 26 U.S.C. 6103.

fect a substantial number of small entities.
See  &)5  VHFWRU  ¿QDQFH
and insurance).
Although the reporting burden falls
primarily on larger entities, some small
HQWLWLHV XQGHU WKH VL]H WKUHVKROG PD\ EH
subject to a one-time reporting requirement that includes information that is
readily available to the entities. This onetime reporting is unlikely to present a sigQL¿FDQW HFRQRPLF EXUGHQ RQ DQ\ VPDOO
entities affected.
Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
SUHFHGLQJ WKH ¿QDO UHJXODWLRQV ZDV VXEmitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business,
and no comments were received.
Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
that agencies assess anticipated costs and
Regulatory Flexibility Act
EHQH¿WVDQGWDNHFHUWDLQRWKHUDFWLRQVEHIRUHLVVXLQJD¿QDOUXOHWKDWLQFOXGHVDQ\
,WLVKHUHE\FHUWL¿HGWKDWWKLVUXOHZLOO )HGHUDOPDQGDWHWKDWPD\UHVXOWLQH[SHQQRW KDYH D VLJQL¿FDQW HFRQRPLF LPSDFW ditures in any one year by a state, local, or
on a substantial number of small entities tribal government, in the aggregate, or by
SXUVXDQWWRWKH5HJXODWRU\)OH[LELOLW\$FW the private sector, of $100 million in 1995
(5 U.S.C. chapter 6). Section 13520 of the GROODUV XSGDWHG DQQXDOO\ IRU LQÀDWLRQ
TCJA added section 6050Y to chapter 61 ,Q  WKDW WKUHVKROG LV DSSUR[LPDWHO\
(Information and Returns) of the Code. $150 million. This rule does not include
Section 6050Y imposes information re- DQ\)HGHUDOPDQGDWHWKDWPD\UHVXOWLQH[porting obligations related to certain life penditures by state, local, or tribal governinsurance contract transactions, including PHQWVRUE\WKHSULYDWHVHFWRULQH[FHVVRI
reportable policy sales and payments of that threshold.
UHSRUWDEOH GHDWK EHQH¿WV 6HFWLRQ <
provides that each of the returns required Executive Order 13132: Federalism
by section 6050Y is to be made “at such
time and in such manner as the Secretary
([HFXWLYH2UGHUWLWOHG³)HGHUVKDOO SUHVFULEH´ 7KH ¿QDO UHJXODWLRQV alism”) prohibits an agency from publishunder section 6050Y implement section ing any rule that has federalism implica6050Y by specifying the manner in which tions if the rule either imposes substantial,
and time at which the information report- direct compliance costs on state and loLQJREOLJDWLRQVPXVWEHVDWLV¿HG%HFDXVH cal governments, and is not required by
the regulations are limited in scope to time statute, or preempts state law, unless the
and manner of information reporting and agency meets the consultation and fundGH¿QLWLRQDO LQIRUPDWLRQ WKH HFRQRPLF LQJUHTXLUHPHQWVRIVHFWLRQRIWKH([HFLPSDFW RI WKH UHJXODWLRQV LV H[SHFWHG WR XWLYH2UGHU7KLV¿QDOUXOHGRHVQRWKDYH
be minimal. In addition, the IRS and Trea- federalism implications and does not imVXU\H[SHFWWKDWWKHUHSRUWLQJEXUGHQZLOO pose substantial direct compliance costs
IDOO SULPDULO\ RQ ¿QDQFLDO DQG LQVXUDQFH on state and local governments or preempt
¿UPV ZLWK DQQXDO UHFHLSWV JUHDWHU WKDQ VWDWHODZZLWKLQWKHPHDQLQJRIWKH([HF$38.5 million and, therefore, will not af- utive Order.

1072

Bulletin No. 2019–47

Drafting Information
The principal author of these regulaWLRQVLV.DWKU\Q06QHDGH2I¿FHRI$Vsociate Chief Counsel (Financial Institutions and Products), IRS. However, other
personnel from the Treasury Department
and the IRS participated in their development.

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.

D


 'HDWK EHQH¿W SD\PHQWV
having the characteristics of life insurance
proceeds payable by reason of death under
Availability of IRS Documents
contracts, such as workmen’s compensation
insurance contracts, endowment contracts,
The IRS notice cited in this preamble is or accident and health insurance contracts,
published in the Internal Revenue Bulletin issued on or before December 31, 1984, are
and is available from the Superintendent covered by this provision. * * * If the life
of Documents, U.S. Government Publish- insurance contract is an employer-owned
LQJ2I¿FH:DVKLQJWRQ'&RUE\ OLIHLQVXUDQFHFRQWUDFWZLWKLQWKHGH¿QLWLRQ
visiting the IRS website at www.irs.gov.
RIVHFWLRQMWKHDPRXQWWREHH[cluded from gross income may be affected
List of Subjects in 26 CFR Part 1
by the provisions of section 101(j).
*****
,QFRPH WD[HV 5HSRUWLQJ DQG UHFRUG(b) * * * (1) Transfer of an interest
keeping requirements.
in a life insurance contract for valuable
consideration—(i) In general. In the case
Adoption of Amendments to the
of a transfer of an interest in a life insurRegulations
ance contract for valuable consideration,
including a reportable policy sale for
Accordingly, 26 CFR part 1 is amend- valuable consideration, the amount of the
ed as follows:
proceeds attributable to the interest that
LV H[FOXGDEOH IURP JURVV LQFRPH XQGHU
PART 1—INCOME TAXES
section 101(a)(1) is limited under section
101(a)(2) to the sum of the actual value
Paragraph 1. The authority citation for of the consideration for the transfer paid
part 1 is amended by adding entries for by the transferee and the premiums and
§§1.6050Y-2, 1.6050Y-3, and 1.6050Y-4 other amounts subsequently paid by the
in numerical order to read in part as fol- transferee with respect to the interest. For
lows:
H[FHSWLRQVWRWKLVJHQHUDOUXOHIRUFHUWDLQ
Authority: 26 U.S.C. 7805 * * *
transfers for valuable consideration that
*****
are not reportable policy sales, see paraSection 1.6050Y-2 also issued under 26 graph (b)(1)(ii) of this section. The appliU.S.C. 6050Y(a).
cation of section 101(d), (f) or (j), which is
Section 1.6050Y-3 also issued under 26 not addressed in paragraph (b) of this secU.S.C. 6050Y(b).
tion, may further limit the amount of the
Section 1.6050Y-4 also issued under 26 SURFHHGVH[FOXGDEOHIURPJURVVLQFRPH
U.S.C. 6050Y(c).
(ii) Exceptions—(A) Exception for
*****
carryover basis transfers. The limitation
Par. 2. Section 1.101-1 is amended by: described in paragraph (b)(1)(i) of this
1. Revising the second sentence of para- section does not apply to the transfer of
graph (a)(1), removing the third sen- an interest in a life insurance contract for
tence of paragraph (a)(1), and adding valuable consideration if each of the fola sentence at the end of paragraph (a) ORZLQJ UHTXLUHPHQWV DUH VDWLV¿HG )LUVW
(1).
the transfer is not a reportable policy sale.
2. Revising paragraphs (b)(1) through Second, the basis of the interest, for the
(3).
purpose of determining gain or loss with
3. Removing paragraphs (b)(4) and (5). respect to the transferee, is determinable
4. Adding paragraphs (c) through (g).
in whole or in part by reference to the basis

Bulletin No. 2019–47

1073

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 interHVW WKDW LV H[FOXGDEOH IURP JURVV LQFRPH
under section 101(a)(1) is limited to the
sum of the amount that would have been
H[FOXGDEOH E\ WKH WUDQVIHURU LI WKH WUDQVfer had not occurred and the premiums
and other amounts subsequently paid by
the transferee with respect to the interest.
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 folORZLQJ UHTXLUHPHQWV DUH VDWLV¿HG )LUVW
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
ZKLFKWKHLQVXUHGLVDVKDUHKROGHURURI¿cer (see section 101(a)(2)(B)).
(2) Transfers to certain persons subsequent to a reportable policy sale.([FHSW
as provided in paragraph (b)(1)(ii)(B)(3)
of this section, 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 previously was 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
LQWHUHVW WKDW LV H[FOXGDEOH IURP JURVV LQcome under section 101(a)(1) is limited to
the sum of—
(i) The higher of the amount that would
KDYHEHHQH[FOXGDEOHE\WKHWUDQVIHURULI
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 with
respect to the interest.

November 18, 2019

(3) Transfers to the insured subsequent
to a reportable policy sale—(i ([FHSW
as provided in paragraph (b)(1)(ii)(B)(3)
(iiRIWKLVVHFWLRQWRWKHH[WHQWWKDWDQLQterest (or portion of an interest) in a life
insurance contract that was transferred
for valuable consideration in a reportable
policy sale subsequently is transferred to
the insured for valuable consideration, the
limitations described in paragraph (b)(1)
(i) of this section and paragraph (b)(1)(ii)
(B)(2) of this section do not apply. To the
H[WHQWWKDWIDLUPDUNHWYDOXHLVQRWSDLGE\
the insured for the transferred interest, the
transfer of the portion of the interest with
DYDOXHLQH[FHVVRIWKHFRQVLGHUDWLRQSDLG
will be treated as a gift under the bargain
sale rule in paragraph (b)(2)(iii) of this
section.
(ii) This paragraph (b)(1)(ii)(B)(3)
(ii) applies with respect to an interest described in paragraph (b)(1)(ii)(B)(3)(i) of
this section (or portion of such an interest)
that subsequently is transferred by the insured to any other person. If all subsequent
transfers of the interest (or portion of the
interest) are gratuitous transfers that are
not reportable policy sales, the amount of
WKHSURFHHGVH[FOXGHGIURPJURVVLQFRPH
is determined under paragraph (b)(2)(i) of
this section, taking into account the application of paragraph (b)(1)(ii)(B)(3)(i) of
this section to the insured’s acquisition of
the interest. If any subsequent transfer of
the interest (or portion of the interest) is
for valuable consideration or is a reportable policy sale, the amount of the policy
SURFHHGVH[FOXGDEOHIURPJURVVLQFRPHLV
determined in accordance with paragraph
(b) of this section; if the amount that would
KDYHEHHQH[FOXGDEOHIURPJURVVLQFRPH
by the insured following the transaction
described in paragraph (b)(1)(ii)(B)(3)(i)
of this section if no subsequent transfer
had occurred is relevant, that amount is
determined under paragraph (b)(1)(ii)(B)
(2) of this section. Paragraph (g)(8) (Example 8) of this section and paragraph (g)
(9) (Example 9) of this section illustrate
the application of this paragraph (b)(1)(ii)
(B)(3)(ii).
(2) Other transfers—(i) Gratuitous
transfer of an interest in a life insurance
contract 7R WKH H[WHQW WKDW D WUDQVIHU RI
an interest in a life insurance contract is
gratuitous, including a reportable policy
sale that is not for valuable consideration,

November 18, 2019

the amount of the proceeds attributable to
WKHLQWHUHVWWKDWLVH[FOXGDEOHIURPJURVV
income under section 101(a)(1) is limited
to the sum of the amount of the proceeds
attributable to the gratuitously transferred
LQWHUHVW WKDW ZRXOG KDYH EHHQ H[FOXGable by the transferor if the transfer had
not occurred and the premiums and other
amounts subsequently paid by the transferee with respect to the interest. However, if an interest in a life insurance contract
is transferred gratuitously to the insured,
and that interest has not previously been
transferred for value in a reportable policy
sale, the entire amount of the proceeds attributable to the interest transferred to the
LQVXUHGLVH[FOXGDEOHIURPJURVVLQFRPH
(ii) Partial transfers. When only part
of an interest in a life insurance contract
LV WUDQVIHUUHG WKH WUDQVIHURU¶V H[FOXVLRQ
is ratably apportioned between or 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
applicable to the type of transfer involved.
(iii) Bargain sales. When the transfer
of an interest in a life insurance contract
is in part a transfer for valuable consideration 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
WKHLQWHUHVWWKDWLVH[FOXGDEOHIURPJURVV
income under section 101(a)(1). Each
separate transaction is subject to the rule
under paragraph (b) of this section that is
applicable 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
WUDQVIHUHHDUHUHGXFHGEXWQRWEHORZ]HUR
by amounts received by the transferee under the life insurance contract that are not
UHFHLYHG DV DQ DQQXLW\ WR WKH H[WHQW H[cludable from gross income under section
72(e).
(c) Reportable policy sale—(1) In general. ([FHSWDVSURYLGHGLQSDUDJUDSKF
(2) of this section, a reportable policy sale

1074

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,
RU ¿QDQFLDO UHODWLRQVKLS ZLWK WKH LQVXUHG
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
VDPHEHQH¿FLDORZQHUVLIWKHRZQHUVKLS
LQWHUHVW RI HDFK EHQH¿FLDO RZQHU LQ WKH
transferor entity does not vary by more
than a 20 percent ownership interest from
WKDW EHQH¿FLDO RZQHU¶V RZQHUVKLS LQWHUest in the transferee entity. In a series of
transfers, the prior sentence is applied by
FRPSDULQJ WKH EHQH¿FLDO RZQHUV¶ RZQHUVKLS LQWHUHVW LQ WKH ¿UVW WUDQVIHURU HQWLW\
and the last transferee entity. For purposes
RIWKLVSDUDJUDSKFLHDFKEHQH¿FLDO
owner of a trust is deemed to have an ownership interest determined by the broadest
SRVVLEOHH[HUFLVHRIDWUXVWHH¶VGLVFUHWLRQ
LQWKDWEHQH¿FLDORZQHU¶VIDYRU3DUDJUDSK
(g)(13) (Example 13) of this section provides an illustration of the application of
this paragraph (c)(2)(i).
(ii) A transfer between corporations
WKDWDUHPHPEHUVRIDQDI¿OLDWHGJURXSDV
GH¿QHGLQVHFWLRQDWKDW¿OHVDFRQVROLGDWHG 86 LQFRPH WD[ UHWXUQ IRU WKH
WD[DEOH\HDULQZKLFKWKHWUDQVIHURFFXUV
(iii) The indirect acquisition of an interest in a life insurance contract by a person if—
(A) A partnership, trust, or other entity in which an ownership interest is being
acquired directly or indirectly holds the
interest in the life insurance contract and
acquired that interest before January 1,
2019, or 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 or indirectly holds the interest in
the life insurance contract, and in which
an ownership interest is being directly
acquired, consists of life insurance contracts, provided that, after the acquisition,
with respect to that partnership, trust, or

Bulletin No. 2019–47

other entity, the person indirectly acquiring the interest in the life insurance contract 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
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 interHVWWKHPD[LPXPDPRXQWRILQFRPHDQG
corpus that could be distributed to or held
IRUWKHEHQH¿WRIWKDWSHUVRQRU
(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
SHUFHQWRUOHVVRIWKHSUR¿WVLQWHUHVW
(iv) The acquisition of a life insurance
contract by an insurance company that
LVVXHV D OLIH LQVXUDQFH FRQWUDFW LQ DQ H[change pursuant to section 1035.
(v) The acquisition of a life insurance
FRQWUDFWE\DSROLF\KROGHULQDQH[FKDQJH
pursuant to section 1035, if the policyholder has a substantial family, business,
RU¿QDQFLDOUHODWLRQVKLSZLWKWKHLQVXUHG
apart from its interest in the life insurance
FRQWUDFWDWWKHWLPHRIWKHH[FKDQJH
(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
WKDWLQGLYLGXDODVGH¿QHGLQSDUDJUDSKI
(3) of this section. In addition, a substanWLDOIDPLO\UHODWLRQVKLSH[LVWVEHWZHHQDQ
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
WKHEHQH¿WRIWKDWIRUPHUVSRXVHLQFLGHQW
to divorce.
(2) Substantial business relationship.
For purposes of this section, a substantial
business relationship between the insured
DQGWKHDFTXLUHUH[LVWVLQHDFKRIWKHIROlowing situations:
(i) The insured is a key person (as de¿QHGLQVHFWLRQRIRUPDWHULDOO\SDUticipates (within the meaning of section
469) in, an active trade or business as an
owner, employee, or contractor, and at
least 80 percent of that trade or business

Bulletin No. 2019–47

is owned (directly or indirectly, through
one or more partnerships, trusts, or other
HQWLWLHV E\ WKH DFTXLUHU RU WKH EHQH¿FLDO
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 ownLQJ VLJQL¿FDQW SURSHUW\ OHDVHG WR WKH DFquired 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 afWHU WKH DFTXLVLWLRQ KDV RQJRLQJ ¿QDQFLDO
obligations to the insured with respect to
the insured’s employment by the trade or
EXVLQHVV IRU H[DPSOH WKH OLIH LQVXUDQFH
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 sigQL¿FDQW SRUWLRQ RI WKH DFTXLUHG EXVLQHVV
assets in an active trade or business that
does not include investing in interests in
life insurance contracts.
(3) 6XEVWDQWLDO ¿QDQFLDO UHODWLRQVKLS
For purposes of this section, a substantial
¿QDQFLDOUHODWLRQVKLSEHWZHHQWKHLQVXUHG
DQGWKHDFTXLUHUH[LVWVLQHDFKRIWKHIROlowing situations:
(i) The acquirer (directly or indirectly,
through one or more partnerships, trusts,
RURWKHUHQWLWLHVRIZKLFKLWLVDEHQH¿FLDO
RZQHUKDVRUWKHEHQH¿FLDORZQHUVRIWKH
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 of or
to satisfy liabilities of the insured or the

1075

insured’s estate, heirs, legatees, or other
successors in interest, or to satisfy other
liabilities arising upon or by reason of the
death of the insured.
LLL 7KH DFTXLUHU LV DQ RUJDQL]DWLRQ
described in sections 170(c), 2055(a), and
2522(a) that previously received from the
LQVXUHG HLWKHU ¿QDQFLDO VXSSRUW LQ D VXEVWDQWLDO DPRXQW RU VLJQL¿FDQW YROXQWHHU
support or that meets other requirements
prescribed in guidance published in the Internal Revenue Bulletin (see § 601.601(d)
(2) of this chapter) for establishing that
D VXEVWDQWLDO ¿QDQFLDO UHODWLRQVKLS H[LVWV
EHWZHHQWKHLQVXUHGDQGWKHRUJDQL]DWLRQ
(4) Special rules. Paragraphs (d)(4)(i),
(ii), and (iii) of this section apply for purposes of determining whether a substantial relationship (whether family, business,
RU¿QDQFLDOH[LVWVXQGHUSDUDJUDSKG
(2), or (3) of this section, respectively.
(i) Indirect acquisitions. The acquirer
of an interest in a life insurance contract in
an indirect acquisition is deemed to have a
VXEVWDQWLDO EXVLQHVV RU ¿QDQFLDO UHODWLRQship with the insured if the direct holder
of the interest in the life insurance contract
KDVDVXEVWDQWLDOEXVLQHVVRU¿QDQFLDOUHlationship 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 of¿FHU LV QRW VXI¿FLHQW WR HVWDEOLVK D VXEVWDQWLDO EXVLQHVV RU ¿QDQFLDO UHODWLRQVKLS
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
VKDUHKROGHURURI¿FHUWRKDYHDVXEVWDQWLDO
EXVLQHVVRU¿QDQFLDOUHODWLRQVKLSZLWKWKH
insured.
(iii) $FTXLVLWLRQV E\ WKRVH ZLWK GLIIHUing types of substantial relationships. A
VXEVWDQWLDO IDPLO\ EXVLQHVV RU ¿QDQFLDO
UHODWLRQVKLS H[LVWV EHWZHHQ WKH LQVXUHG
and a partnership, trust, or other entity if
HDFKEHQH¿FLDORZQHURIWKDWSDUWQHUVKLS
trust, or other entity has a substantial famLO\EXVLQHVVRU¿QDQFLDOUHODWLRQVKLSZLWK
WKH LQVXUHG )RU H[DPSOH D VXEVWDQWLDO
IDPLO\EXVLQHVVRU¿QDQFLDOUHODWLRQVKLS
H[LVWV EHWZHHQ WKH LQVXUHG DQG D WUXVW LI
HDFKWUXVWEHQH¿FLDU\LVDIDPLO\PHPEHU

November 18, 2019

RIWKHLQVXUHGRUDQRUJDQL]DWLRQGHVFULEHG
in paragraph (d)(3)(iii) of this section.
(e) Interest in a life insurance contract—(1) 'H¿QLWLRQFor 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
FRQWUDFWRUWRDQ\RWKHUHFRQRPLFEHQH¿WV
of the policy as described in §20.2042-1(c)
(2) of this chapter, such as the enforceable
ULJKW WR GHVLJQDWH D FRQWUDFW EHQH¿FLDU\
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 bene¿FLDORZQHUVKLSRIWKHOLIHLQVXUDQFHFRQtract 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
EHQH¿FLDU\ RI WKH SROLF\ SURFHHGV XQWLO
the 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
H[FKDQJHSXUVXDQWWRVHFWLRQ
(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).

November 18, 2019

(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
DFTXLUHUEHFRPHVDEHQH¿FLDORZQHURID
partnership, trust, or other entity that holds
(whether directly or indirectly) the interHVWZKHWKHUOHJDORUEHQH¿FLDOLQWKHOLIH
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) 'H¿QLWLRQV 7KH IROORZLQJ GH¿QLtions apply for purposes of this section:
(1) %HQH¿FLDORZQHU$EHQH¿FLDORZQer 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),
LVDQLQGLUHFWEHQH¿FLDORZQHURI3DQG
any assets or other entities owned by P2
directly or indirectly. For purposes of this
SDUDJUDSKIWKHEHQH¿FLDORZQHUVRI
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 (vi) 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)

1076

(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; and
(vi) Any lineal descendant of a person
described in paragraph (f)(3)(v) of this
section.
(4) Gross value of assets—(i) Determination of gross value of assets([FHSWDV
provided in paragraph (f)(4)(ii) or (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
WKHHQWLW\¶VDVVHWVLQFOXGLQJDVVHWVEHQH¿cially owned by the entity under paragraph
IRIWKLVVHFWLRQDVDEHQH¿FLDORZQHU
of a partnership, trust, or other entity.
(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
HQWLW\¶V DQQXDO )RUP . ¿OHG ZLWK WKH
8QLWHG 6WDWHV 6HFXULWLHV DQG ([FKDQJH
&RPPLVVLRQRUHTXLYDOHQWDQQXDO¿OLQJLI
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 consists of life insurance contracts, that person may assume
that no more than 50 percent of the gross
value of the entity’s assets consists 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 consists of life insurance contracts.
(iii) 6DIH KDUERU GH¿QLWLRQ RI JURVV
value of assets. An entity may choose to
determine the gross value of all the entity’s assets for purposes of this section us-

Bulletin No. 2019–47

LQJWKHIROORZLQJDOWHUQDWLYHGH¿QLWLRQRI
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
FDVKVXUUHQGHUYDOXHDVGH¿QHGLQVHFWLRQ
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
VHFWLRQLVLOOXVWUDWHGE\WKHIROORZLQJH[DPSOHV (DFK H[DPSOH DVVXPHV WKDW WKH
transferee did not receive any amounts
under the life insurance contract other
WKDQ WKH DPRXQWV GHVFULEHG LQ WKH H[DPSOHV:LWKWKHH[FHSWLRQRISDUDJUDSKJ
(7) (Example 7) of this section, the bargain
sale rules set forth in paragraph (b)(2)(iii)
RIWKLVVHFWLRQGRQRWDSSO\LQWKHH[DPples because the consideration paid for the
policy transferred is fair market value:
(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
IRU YDOXDEOH FRQVLGHUDWLRQ DQG QRQH RI WKH H[FHStions in paragraph (b)(1)(ii) of this section applies,
WKH DPRXQW RI WKH SURFHHGV % PD\ H[FOXGH IURP
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 with respect
to the policy subsequent to the transfer.
(2) Example 2. The facts are the same as in Example 1 LQ SDUDJUDSK J RI WKLV VHFWLRQ H[FHSW
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 to the insured, and the
preceding transfer from A to B was not a reportable
policy sale, the amount of the proceeds A’s estate
PD\ H[FOXGH IURP JURVV LQFRPH XQGHU WKLV VHFWLRQ
is not limited by paragraph (b)(2)(i) of this section.
(3) Example 3. The facts are the same as in Example 1 LQ SDUDJUDSK J RI WKLV VHFWLRQ H[FHSW
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 the insured,
A. The transfer from B to A also is 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, and the amount of the proceeds A’s

Bulletin No. 2019–47

HVWDWHPD\H[FOXGHIURPJURVVLQFRPHLVQRWOLPLWHG
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 $6,000, its fair market value, to an individual, C, who does not have a substantial family, busiQHVV RU ¿QDQFLDO UHODWLRQVKLS ZLWK$ 7KH WUDQVIHU
from A to C is a reportable policy sale. C receives the
proceeds of $100,000 on A’s death. The amount of
WKHSURFHHGV&PD\H[FOXGHIURP&¶VJURVVLQFRPH
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 with respect to the policy
subsequent to the transfer.
(5) Example 5. The facts are the same as in Example 4 LQ SDUDJUDSK J RI WKLV VHFWLRQ H[FHSW
that before A’s death, C transfers the policy to D, a
partner of A who co-owns real property with A, for
$8,000, the policy’s fair market value. D receives
the proceeds of $100,000 on A’s death. The transfer
from C to D is not a reportable policy sale because
WKHDFTXLUHU'KDVDVXEVWDQWLDO¿QDQFLDOUHODWLRQVKLS
with the insured, A. However, because that transfer
follows a reportable policy sale (the transfer from A
WR&WKHDPRXQWRIWKHSURFHHGVWKDW'PD\H[FOXGH
from gross income under this section is limited by
paragraph (b)(1)(ii)(B)(2) of this section to the sum
of—
L 7KH KLJKHU RI WKH DPRXQW & FRXOG KDYH H[cluded had the transfer to D not occurred ($6,000
plus any premiums and other amounts paid by C with
respect to the policy 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 D ($8,000); and
(ii) Any premiums and other amounts paid by D
with respect to the policy subsequent to the transfer
to D.
(6) Example 6. The facts are the same as in Example 4LQSDUDJUDSKJRIWKLVVHFWLRQH[FHSW
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 $100,000 on A’s death.
The transfer from C to A is not a reportable policy
sale because the acquirer A has a substantial family relationship with the insured, A. Although the
transfer follows a reportable policy sale (the initial
WUDQVIHU IURP$ WR &$¶V HVWDWH PD\ H[FOXGH DOO
of the policy proceeds from gross income because
paragraph (b)(1)(ii)(B)(3)(i) of this section applies
and, therefore, the amount of the proceeds that A
PD\ H[FOXGH IURP JURVV LQFRPH LV QRW OLPLWHG E\
paragraph (b)(1)(i) of this section or (b)(1)(ii)(B)
(2) of this section.
(7) Example 7. The facts are the same as in Example 6LQSDUDJUDSKJRIWKLVVHFWLRQH[FHSWWKDW&
transfers the policy back to A for $4,000, rather than
its fair market value of $8,000. A’s estate receives the
proceeds of $100,000 on A’s death. Because A did
not pay fair market value for the policy, the transfer
is bifurcated and treated as a bargain sale under paragraph (b)(2)(iii) of this section. A therefore is treated
as having purchased 50% of the policy interest for
valuable consideration equal to fair market value and
as having received 50% of the policy interest in a
gratuitous transfer. 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,

1077

but the transfer from C to A follows a reportable policy sale (the transfer from A to C).
(i) Treatment of policy interest purchased by A.
$¶VHVWDWHPD\H[FOXGHIURPLQFRPHDOORIWKHSROLcy proceeds related to the 50% policy interest transferred for valuable consideration ($50,000) because,
under paragraph (b)(1)(ii)(B)(3)(i) of this section,
WKH DPRXQW RI WKH SURFHHGV WKDW PD\ EH H[FOXGHG
from gross income is not limited by paragraph (b)(1)
(i) of this section or (b)(1)(ii)(B)(2) of this section.
(ii) Treatment of policy interest gratuitously
transferred to A. The amount of the policy proceeds
related to the 50% policy interest transferred gratuLWRXVO\ WKDW$¶V HVWDWH PD\ H[FOXGH IURP LQFRPH LV
limited under paragraph (b)(2)(i) of this section to
WKHVXPRIWKHDPRXQW&FRXOGKDYHH[FOXGHGZLWK
respect to 50% of the policy had the transfer back
to A not occurred (that is, 50% of the $6,000 that C
paid A for the policy, plus 50% of any premiums and
other amounts paid by C with respect to the policy
subsequent to the transfer to C), plus 50% of any premiums and other amounts paid by A with respect to
the policy subsequent to the transfer to A.
(8) Example 8. The facts are the same as in Example 6 LQ SDUDJUDSK J RI WKLV VHFWLRQ H[FHSW
that, before A’s death, A gratuitously transfers 50%
of the policy interest to B, A’s child, and sells 50%
of the policy interest for its fair market value to an
individual, E, who does not have a substantial famLO\EXVLQHVVRU¿QDQFLDOUHODWLRQVKLSZLWK$%DQG
E each receive $50,000 of the proceeds on A’s death.
Paragraph (b)(1)(ii)(B)(3)(ii) of this section applies
to determine the amount of the proceeds that B and E
PD\H[FOXGHIURPJURVVLQFRPHEHFDXVHWKHSROLF\
LQWHUHVWVWUDQVIHUUHGWR%DQG(ZHUH¿UVWWUDQVIHUUHG
for valuable consideration in a reportable policy sale
(the transfer by A to C) and then transferred to the
insured, A, for fair market value.
(i) Treatment of policy interest transferred to
B. With respect to the portion of the policy interest
transferred to B, because the transfer to B was the
only transfer subsequent to the transfer to A and the
transfer to B was gratuitous and not a reportable policy sale, under paragraph (b)(1)(ii)(B)(3)(ii) of this
VHFWLRQ WKH DPRXQW RI WKH SROLF\ SURFHHGV H[FOXGable from gross income by B is determined under
paragraph (b)(2)(i) of this section, taking into account the application of paragraph (b)(1)(ii)(B)(3)(i)
of this section to A’s acquisition of the interest. Under
paragraph (b)(2)(i) of this section, the amount of the
SURFHHGV%PD\H[FOXGHLVOLPLWHGWRWKHVXPRIWKH
DPRXQW$FRXOGKDYHH[FOXGHGKDGWKHWUDQVIHUWR%
not occurred, and any premiums and other amounts
paid by B with respect to the policy subsequent to the
transfer to B. As described in Example 6 in paragraph
(g)(6) of this section, under paragraph (b)(1)(ii)(B)
(3)(i) of this section, the amount of the proceeds that
$PD\H[FOXGHIURPJURVVLQFRPHLVQRWOLPLWHGE\
paragraph (b)(1)(i) of this section or (b)(1)(ii)(B)(2)
of this section. Accordingly, the amount of the proFHHGVWKDW%PD\H[FOXGHIURPJURVVLQFRPHLVQRW
limited by paragraph (b) of this section.
(ii) Treatment of policy interest transferred to
E. With respect to the portion of the policy interest transferred to E, because the transfer to E was
not gratuitous and was a reportable policy sale,
under paragraph (b)(1)(ii)(B)(3)(ii) of this section,
WKHDPRXQWRIWKHSROLF\SURFHHGVH[FOXGDEOHIURP

November 18, 2019

gross income by E is determined in accordance with
paragraph (b) of this section. Accordingly, because
the transfer to E was for valuable consideration, the
DPRXQWH[FOXGDEOHIURPJURVVLQFRPHE\(LVOLPited by paragraph (b)(1)(i) of this section unless an
H[FHSWLRQLQSDUDJUDSKELLRIWKLVVHFWLRQDSplies. Because the transfer from A to E is a reportable
SROLF\VDOHQRQHRIWKHH[FHSWLRQVLQSDUDJUDSKE
(1)(ii) of this section apply. Therefore, the amount
RI WKH SURFHHGV ( PD\ H[FOXGH IURP JURVV LQFRPH
under this section is limited by paragraph (b)(1)(i) of
this section to the sum of the consideration paid by E
and the premiums and other amounts paid by E with
respect to the policy subsequent to the transfer to E.
(9) Example 9. The facts are the same as in Example 8LQSDUDJUDSKJRIWKLVVHFWLRQH[FHSWWKDW
before A’s death, B transfers B’s policy interest to
Partnership F, whose partners are A and other family
PHPEHUVRI$LQH[FKDQJHIRUDSDUWQHUVKLSLQWHUHVW
in Partnership F. Partnership F receives $50,000 of
the proceeds on A’s death. With respect to the policy
interest transferred to Partnership F, paragraph (b)(1)
(ii)(B)(3)(ii) of this section applies to determine the
DPRXQWRIWKHSURFHHGVWKDW3DUWQHUVKLS)PD\H[clude from gross income for the reasons described in
Example 8 in paragraph (g)(8) of this section.
(i) Treatment of policy interest transferred to
Partnership F. The transfer to Partnership F was not
a reportable policy sale. However, because the transfer to Partnership F was not gratuitous, the amount
RIWKHSROLF\SURFHHGVH[FOXGDEOHIURPJURVVLQFRPH
by Partnership F is determined in accordance with
paragraph (b) of this section as if the amount that
ZRXOG KDYH EHHQ H[FOXGDEOH IURP JURVV LQFRPH
by A following the transfer to A, if no subsequent
transfer had occurred, was determined under paragraph (b)(1)(ii)(B)(2) of this section. Because B’s
transfer to Partnership F was a transfer for valuable
consideration to a partnership in which the insured
is a partner that was preceded by a reportable policy
sale (the transfer to C), the amount of the proceeds
3DUWQHUVKLS)PD\H[FOXGHIURPJURVVLQFRPHXQGHU
this section is limited under paragraph (b)(1)(ii)(B)
(2) of this section to the higher of the amount that
ZRXOGKDYHEHHQH[FOXGDEOHE\%LIWKHWUDQVIHUWR
Partnership F had not occurred or the actual value
of the consideration for the policy paid by Partnership F, plus any premiums and other amounts paid by
Partnership F with respect to the policy subsequent
to the transfer to Partnership F.
(ii) Amount that B could have excluded. Because
the transfer from A to B was a gratuitous transfer,
WKHDPRXQWRIWKHSURFHHGV%FRXOGKDYHH[FOXGHG
from gross income under this section if the transfer
to Partnership F had not occurred is limited under
paragraph (b)(2)(i) of this section to the sum of the
DPRXQW$FRXOGKDYHH[FOXGHGKDGWKHWUDQVIHUWR%
not occurred, and any premiums and other amounts
paid by B with respect to the policy subsequent to
the transfer to B.
(iii) Amount that A could have excluded. As
described in paragraph (g)(9)(i) of this section, the
DPRXQWRIWKHSURFHHGV$FRXOGKDYHH[FOXGHGXQder this section if the transfer to B had not occurred
must be determined under paragraph (b)(1)(ii)(B)
(2) of this section in accordance with paragraph (b)
(1)(ii)(B)(3)(ii) of this section. Under paragraph (b)
(1)(ii)(B)(2) of this section, the amount that would

November 18, 2019

KDYH EHHQ H[FOXGDEOH E\$ LV OLPLWHG WR WKH KLJKHU
RI WKH DPRXQW WKDW ZRXOG KDYH EHHQ H[FOXGDEOH E\
C if the transfer to A had not occurred ($6,000 plus
premiums and other amounts subsequently paid by
C) or the actual value of the consideration for the
policy paid by A ($8,000), plus any premiums and
other amounts paid by A with respect to the policy
subsequent to the transfer to A.
(10) Example 10. A is the initial policyholder of a
$100,000 insurance policy on A’s life. A contributes
WKH SROLF\ WR &RUSRUDWLRQ ; LQ H[FKDQJH IRU VWRFN
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 $100,000 on A’s death. A’s contribution
of the policy to Corporation X is not a reportable
policy sale because Corporation X has a substantial
business relationship with A under paragraph (d)(2)
(i) of this section. Although Corporation X’s basis
in the policy is determinable in whole or in part by
reference to A’s basis in the policy, paragraph (b)(1)
(ii)(A) of this section does not apply because the insured, A, is a shareholder of Corporation X and the
other requirements under paragraph (b)(1)(ii)(B) of
WKLVVHFWLRQDUHVDWLV¿HG$FFRUGLQJO\SDUDJUDSKE
(1)(ii)(B) of this section applies, and paragraph (b)
(1)(ii)(A) of this section is inapplicable. Under paragraph (b)(1)(ii)(B)(1) of this section, Corporation
;¶VH[FOXVLRQLVQRWOLPLWHGE\SDUDJUDSKERIWKLV
section.
(11) Example 11. The facts are the same as in
Example 10 in paragraph (g)(10) of this section,
H[FHSW WKDW &RUSRUDWLRQ ; WUDQVIHUV LWV DFWLYH WUDGH
or business and the policy on A’s life to Corporation
< LQ D WD[IUHH UHRUJDQL]DWLRQ DW D WLPH ZKHQ$ LV
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 policy, 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
WKDW&RUSRUDWLRQ<PD\H[FOXGHIURPJURVVLQFRPH
is limited under paragraph (b)(1)(ii)(A) of this section to the sum of the amount that would have been
H[FOXGDEOH E\ &RUSRUDWLRQ ; KDG WKH WUDQVIHU WR
Corporation Y not occurred, plus any premiums and
other amounts paid by Corporation Y with respect
to the policy subsequent to the transfer. Accordingly,
EHFDXVH&RUSRUDWLRQ;¶VH[FOXVLRQLVQRWOLPLWHGE\
paragraph (b) of this section, as described in Example 10 in paragraph (g)(10) of this section, CorporaWLRQ<¶VH[FOXVLRQLVQRWOLPLWHGE\SDUDJUDSKERI
this section.
(12) Example 12. A is the initial policyholder of a
$100,000 insurance policy on A’s life. A contributes
WKHSROLF\WRD&FRUSRUDWLRQ&RUSRUDWLRQ:LQH[change for stock. After the acquisition, A owns less
than 20% of the outstanding stock of Corporation W
and owns stock possessing less than 20 % of the total
combined voting power of all stock of Corporation

1078

W and is therefore not a key person with respect to
Corporation W under section 264(e)(3). Corporation
W’s basis in the policy is determinable in whole or
in part by reference to A’s basis in the policy. HowHYHUQRVXEVWDQWLDOIDPLO\EXVLQHVVRU¿QDQFLDOUHODWLRQVKLS H[LVWV EHWZHHQ$ DQG &RUSRUDWLRQ : VR
A’s contribution of the policy to Corporation W is
a reportable policy sale. Corporation W receives the
proceeds of $100,000 on A’s death. Under paragraph
(b)(1)(i) of this section, the amount of the proceeds
&RUSRUDWLRQ : PD\ H[FOXGH IURP JURVV LQFRPH LV
OLPLWHG WR WKH DFWXDO YDOXH RI WKH VWRFN H[FKDQJHG
for the policy, plus any premiums and other amounts
paid by Corporation W with respect to the policy
VXEVHTXHQW WR WKH WUDQVIHU 7KH H[FHSWLRQV LQ SDUDgraph (b)(1)(ii) of this section do not apply because
the transfer to Corporation W is a reportable policy
sale.
(13) Example 13. Partnership X and Partnership
Y are owned by individuals A, B, and C. A holds 40%
RI WKH FDSLWDO DQG SUR¿WV LQWHUHVW RI 3DUWQHUVKLS ;
DQGRIWKHFDSLWDODQGSUR¿WVLQWHUHVWRI3DUWQHUVKLS<%KROGVRIWKHFDSLWDODQGSUR¿WVLQWHUHVW
RI3DUWQHUVKLS;DQGRIWKHFDSLWDODQGSUR¿WV
interest of Partnership Y. C holds 25% of the capital
DQGSUR¿WVLQWHUHVWRI3DUWQHUVKLS;DQGRIWKH
FDSLWDODQGSUR¿WVLQWHUHVWRI3DUWQHUVKLS<3DUWQHUship 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
EHQH¿FLDORZQHULQ3DUWQHUVKLS;GRHVQRWYDU\IURP
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.
(14) Example 14. 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%
SUR¿WV LQWHUHVW LQ 3DUWQHUVKLS ; LQ H[FKDQJH IRU D
cash payment of $1,000,000. Under paragraphs (d)
(1) through (3) of this section, B does not have a
VXEVWDQWLDOIDPLO\EXVLQHVVRU¿QDQFLDOUHODWLRQVKLS
with A. Under paragraph (d)(4)(i) of this section,
however, B is deemed to have a substantial business
relationship with A because, under paragraph (d)(2)
(i) of this section, Partnership X (the direct policyholder) has a substantial business relationship with
A. Accordingly, although the acquisition of the 10%
partnership interest by B is an indirect acquisition of
a 10% interest in the insurance policy covering A’s
life, the acquisition is not a reportable policy sale.
(15) Example 15. The facts are the same as in Example 14LQSDUDJUDSKJRIWKLVVHFWLRQH[FHSW
that A is no longer an employee of Partnership X, and
Partnership X has no substantial family, business, or
¿QDQFLDO UHODWLRQVKLS ZLWK$ ZKHQ % DFTXLUHV WKH
SUR¿WV LQWHUHVW LQ 3DUWQHUVKLS ; $OVR % DFTXLUHV
RQO\ D  SUR¿WV LQWHUHVW LQ H[FKDQJH IRU D FDVK
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 $10 million. Although
neither Partnership X nor B has a substantial family,
EXVLQHVVRU¿QDQFLDOUHODWLRQVKLSZLWK$DWWKHWLPH

Bulletin No. 2019–47

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) 'H¿QLWLRQRIHVWLPDWHRILQYHVWPHQW
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 con§1.6050Y-1 Information reporting for
reportable policy sales, transfers of life tract by that person before that date to the
insurance contracts to foreign persons, H[WHQWVXFKLQIRUPDWLRQLVNQRZQWRRUFDQ
reasonably be estimated by the issuer or
DQGUHSRUWDEOHGHDWKEHQH¿WV
payor.
(8) Issuer—(i) In general. ([FHSW DV
(a) 'H¿QLWLRQV 7KH IROORZLQJ GH¿QLtions apply for purposes of this section provided in paragraph (a)(8)(ii) or (iii)
of this section, the term issuer generally
and §§1.6050Y-2 through 1.6050Y-4:
(1) Acquirer. The term acquirer means means, on any date, with respect to any
any person that acquires an interest in a interest in a life insurance contract, any
life insurance contract (through a direct person that bears any part of the risk with
acquisition or indirect acquisition of the respect to the contract on that date and
any person responsible on that date for
interest) in a reportable policy sale.
(2) Buyer. The term buyer means, with administering the contract, including colrespect to any interest in a life insurance lecting premiums and paying death benecontract that has been transferred in a re- ¿WV )RU LQVWDQFH LI D UHLQVXUHU UHLQVXUHV
portable policy sale, the person that was on an indemnity basis all or a portion of
the most recent acquirer of that interest in the risks that the original issuer (and cona reportable policy sale as of the date re- tinuing contract administrator) of the conPar. 3. Section 1.101-6 is amended by SRUWDEOHGHDWKEHQH¿WVDUHSDLGXQGHUWKH tract might otherwise have incurred with
respect to the contract, both the reinsurer
contract.
revising paragraph (b) to read as follows:
(3) Direct acquisition of an interest in and the original issuer of the contract are
a life insurance contract. The term direct issuers of the contract for purposes of this
§1.101-6 Effective date.
acquisition of an interest in a life insur- paragraph (a)(8)(i). Any designee of an
ance contract has the meaning given to it issuer of a contract is also considered an
*****
issuer of the contract for purposes of this
(b) Notwithstanding paragraph (a) of in §1.101-1(e)(3)(i).
(4) Foreign person. The term foreign paragraph (a)(8)(i).
this section, for purposes of determining
(ii) 6050Y(a) issuer. For purposes
whether a transfer of an interest in a life person means a person that is not a Unitinsurance contract is a reportable poli- HG 6WDWHV SHUVRQ DV GH¿QHG LQ VHFWLRQ of information reporting under section
6050Y(a) and §1.6050Y-2, the 6050Y(a)
F\ VDOH RU D SD\PHQWRI GHDWK EHQH¿WV LV 7701(a)(30).
(5) Indirect acquisition of an interest issuer is the issuer that is responsible for
D SD\PHQW RI UHSRUWDEOH GHDWK EHQH¿WV
subject to the reporting requirements of in a life insurance contract. The term in- administering the life insurance contract,
section 6050Y and §§1.6050Y-1 through direct acquisition of an interest in a life including collecting premiums and pay1.6050Y-4, §1.101-1(b) through (g) ap- insurance contract has the meaning given LQJ GHDWK EHQH¿WV XQGHU WKH FRQWUDFW RQ
the date of the reportable policy sale. In
ply to reportable policy sales made after to it in §1.101-1(e)(3)(ii).
(6) Interest in a life insurance con- the case of the issuance of a life insurance
December 31, 2018, and to reportable
GHDWK EHQH¿WV SDLG DIWHU 'HFHPEHU  tract. The term interest in a life insurance FRQWUDFWWRDSROLF\KROGHULQDQH[FKDQJH
2018. For any other purpose, including contract has the meaning given to it in pursuant to section 1035, the 6050Y(a) issuer is the issuer that issues the new confor purposes of determining the amount §1.101-1(e)(1).
(7) Investment in the contract—(i) tract.
of the proceeds of life insurance contracts
(iii) 6050Y(b) issuer. For purposes
SD\DEOHE\UHDVRQRIGHDWKH[FOXGHGIURP 'H¿QLWLRQ RI LQYHVWPHQW LQ WKH FRQWUDFW
gross income under section 101, §1.101- With respect to the original policyhold- of information reporting under section
1(b) through (g) apply to amounts paid by er of a life insurance contract, the term 6050Y(b) and §1.6050Y-3, a 6050Y(b)
reason of the death of the insured under a investment in the contract on any date issuer is:
(A) Any person that receives an RPSS
life insurance contract, or interest therein, means that person’s investment in the contransferred after October 31, 2019. How- tract under section 72(e)(6) on that date. with respect to a life insurance contract or

of B’s indirect acquisition of an interest in the policy
FRYHULQJ$¶VOLIHEHFDXVH%¶VSUR¿WVLQWHUHVWLQ3DUWQHUVKLS;GRHVQRWH[FHHGDQGEHFDXVHQRPRUH
than 50% of Partnership X’s asset value consists of
OLIHLQVXUDQFHFRQWUDFWVWKHH[FHSWLRQLQSDUDJUDSK
(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.
(16) Example 16. A is the initial policyholder of
a $100,000 insurance policy on A’s life. A sells the
policy for its fair market value. As a result of the sale,
Bank X holds legal title to the life insurance contract
as the nominee of Partnership B, and Partnership B
has the enforceable right to designate the contract
EHQH¿FLDU\8QGHUSDUDJUDSKVGWKURXJKRI
this section, neither Bank X nor Partnership B has a
VXEVWDQWLDOIDPLO\EXVLQHVVRU¿QDQFLDOUHODWLRQVKLS
with the insured, A, at the time of the sale. Accordingly, the transfer of legal title to the policy to Bank
X is a reportable policy sale under paragraph (c)(1)
RIWKLVVHFWLRQXQOHVVDQH[FHSWLRQVHWIRUWKLQSDUDgraph (c)(2) of this section applies. The same is true
RIWKHWUDQVIHURIWKHHFRQRPLFEHQH¿WVRIWKHSROLF\
to Partnership B. At a later date, Partnership B sells
its economic interest in the policy to Partnership C
for fair market value. Bank X continues to hold legal title to the life insurance contract, but now holds
it as Partnership C’s nominee. Partnership C has no
VXEVWDQWLDOIDPLO\EXVLQHVVRU¿QDQFLDOUHODWLRQVKLS
with the insured, A, under paragraphs (d)(1) through
(4) of this section at the time of the transfer. Accordingly, Partnership C’s acquisition of the economic interest in the policy from Partnership B is a reportable
policy sale under paragraph (c)(1) of this section,
XQOHVVDQH[FHSWLRQVHWIRUWKLQSDUDJUDSKFRI
this section applies.

Bulletin No. 2019–47

HYHUXQGHUVHFWLRQEDWD[SD\HU
may apply the rules set forth in §1.101EWKURXJKJRIWKH¿QDOUHJXODWLRQVLQ
their entirety, with respect to all amounts
paid by reason of the death of the insured
under a life insurance contract, or interest
therein, transferred after December 31,
2017, and on or before October 31, 2019.
Par. 4. Section 1.6050Y-1 is added to
read as follows:

1079

November 18, 2019

interest therein (or, in the case of a designee, receives notice that the issuer for
whom it serves as designee received an
RPSS), and is or was, on or before the
date of receipt of the RPSS, an issuer with
respect to the contract; or
(B) Any person that receives notice of
a transfer to a foreign person of a life insurance contract, provided that the person
is or was, on the date of transfer or on the
date of receipt of the notice, an issuer with
respect to the contract, and provided that
the information is not received from the
issuer responsible for administering the
contract (or its designee), 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 contract, including collecting premiXPV DQG SD\LQJ GHDWK EHQH¿WV XQGHU WKH
contract, on the date the notice of a transfer to a foreign person is received; and
(2) That person, or its designee, provides the issuer that is responsible on that
date for administering the contract, including collecting premiums and paying
GHDWK EHQH¿WV XQGHU WKH FRQWUDFW ZLWK
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 that includes
foreign indicia, including information
SURYLGHG IRU QRQWD[ SXUSRVHV VXFK DV D
change of address notice for purposes of
sending statements or for other purposes,
and information relating to loans, prePLXPV RU GHDWK EHQH¿WV ZLWK UHVSHFW WR
the contract, unless the 6050Y(b) issuer

November 18, 2019

knows that no transfer of the 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
: 5HTXHVW IRU7D[SD\HU ,GHQWL¿FDWLRQ
1XPEHUDQG&HUWL¿FDWLRQRUDYDOLGVXEstitute 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
IRUHLJQ ¿QDQFLDO LQVWLWXWLRQ LQIRUPDWLRQ
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
GHDWKEHQH¿WV
(12) 5HSRUWDEOH GHDWK EHQH¿WV The
term UHSRUWDEOH GHDWK EHQH¿WV means
amounts paid by reason of the death of the
insured under a life insurance contract that
are attributable to an interest in the contract that was transferred in a reportable
policy sale.
(13) 5HSRUWDEOHGHDWKEHQH¿WVSD\PHQW
recipient. The term reportable death benH¿WVSD\PHQWUHFLSLHQWmeans any person
WKDWUHFHLYHVUHSRUWDEOHGHDWKEHQH¿WVDVD
EHQH¿FLDU\XQGHUDOLIHLQVXUDQFHFRQWUDFW
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 reducible to a money value 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 total amount
of cash and the fair market value of any
other consideration reducible to a money
value transferred, or to be transferred, for

1080

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
recipient²L([FHSWDVSURYLGHGLQSDUDgraph (a)(16)(ii) of this section, 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.
(ii) A person other than the seller is not
a reportable policy sale payment recipient
with respect to a reportable policy sale if
that person receives aggregate payments
of less than $600 with respect to that reportable policy sale.
(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 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, 2018. This section and §1.6050Y DSSO\ WR UHSRUWDEOH GHDWK EHQH¿WV SDLG
after December 31, 2018. However, for
reportable policy sales and payments of
UHSRUWDEOH GHDWK EHQH¿WV RFFXUULQJ DIWHU
December 31, 2018, and on or before October 31, 2019, transition relief is provided as follows:
(1) Statements required to be furnished
to issuers under section 6050Y(a)(2) and

Bulletin No. 2019–47

§1.6050Y-2(d)(2)(i) must be furnished
by the later of the applicable deadline set
forth in §1.6050Y-2(d)(2)(ii) or December
30, 2019.
(2) Statements required to be furnished to reportable policy sale payment
recipients under section 6050Y(a)(2) and
§1.6050Y-2(d)(1)(i) must be furnished
by the later of the applicable deadline set
forth in §1.6050Y-2(d)(1)(ii) or February
28, 2020.
(3) Statements required to be furnished
to sellers under section 6050Y(b)(2) and
§1.6050Y-3(d)(1) must be furnished by
the later of the applicable deadline set
forth in §1.6050Y-3(d)(2) or February 28,
2020.
(4) Statements required to be furnished
WR UHSRUWDEOH GHDWK EHQH¿WV SD\PHQW UHcipients under section 6050Y(c)(2) and
§1.6050Y-4(c)(1) must be furnished by
the later of the applicable deadline set
forth in §1.6050Y-4(c)(2) or February 28,
2020.
 5HWXUQV UHTXLUHG WR EH ¿OHG XQGHU
section 6050Y(a)(1) and §1.6050Y-2(a),
section 6050Y(b)(1) and §1.6050Y-3(a),
and section 6050Y(c)(1) and §1.6050Y-4
PXVW EH ¿OHG E\ WKH ODWHU RI WKH DSSOLFDble deadline set forth in §1.6050Y-2(c),
§1.6050Y-3(c), and §1.6050Y-4(b) or
February 28, 2020.
Par. 5. Section 1.6050Y-2 is added to
read as follows:

(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) 8QL¿HGUHSRUWLQJ 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, as well as
each acquirer in a simultaneous transfer
of different interests in a single life insurance contract. In either case, an acquirer’s
UHSRUWLQJ REOLJDWLRQ LV GHHPHG VDWLV¿HG
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) 7LPH DQG SODFH IRU ¿OLQJ Returns
§1.6050Y-2 Information reporting by
required to be made under paragraph (a)
acquirers for reportable policy sale
RI WKLV VHFWLRQ PXVW EH ¿OHG ZLWK WKH ,Qpayments.
ternal Revenue Service Center designated
on the prescribed form or in its instruc(a) Requirement of reporting. ([FHSW tions on or before February 28 (March 31
as provided in paragraph (f) of this sec- LI¿OHGHOHFWURQLFDOO\RIWKH\HDUIROORZtion, every person that is an acquirer in ing the calendar year in which the reporta reportable policy sale during any cal- able policy sale occurred. However, see
HQGDU\HDUPXVW¿OHDVHSDUDWHLQIRUPD- §1.6050Y-1(b)(5) for transition rules.
tion return with the Internal Revenue
(d) Requirement of and time for furService (IRS) in the form and manner as nishing statements—(1) Statements to rerequired by the IRS for each reportable portable policy sale payment recipients—
policy sale payment recipient, includ- (i) Requirement of furnishing statement.
ing any seller that is a reportable policy (YHU\ SHUVRQ UHTXLUHG WR ¿OH DQ LQIRUsale payment recipient. Each return must mation return under paragraph (a) of this
include the following information with section with respect to a reportable policy
respect to the seller or other reportable sale payment recipient must furnish in the
policy sale payment recipient to which form and manner prescribed by the IRS to
the return relates:
the reportable policy sale payment recipi 7KH QDPH DGGUHVV DQG WD[SD\HU ent whose name is set forth in that return a
LGHQWL¿FDWLRQQXPEHU7,1RIWKHDFTXLU- written statement showing the information
er;
required by paragraph (a) of this section

Bulletin No. 2019–47

1081

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 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. ([FHSWDVSURYLGHGLQSDUDJUDSK
(d)(2)(i)(B) of this section, every person
UHTXLUHG WR ¿OH D UHWXUQ XQGHU SDUDJUDSK
(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 an 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 reVSHFW WR WKH VHOOHU QDPHG WKHUHLQ H[FHSW
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. An
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. ([FHSW
as 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 report-

November 18, 2019

able 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. However,
see §1.6050Y-1(b)(1) for transition rules.
(3) 8QL¿HGUHSRUWLQJ 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 well as each acquirer in a simultaneous transfer of different interests
in a single life insurance contract, as described in paragraph (b) of this section.
In either case, an acquirer’s obligation to
IXUQLVKVWDWHPHQWVLVGHHPHGVDWLV¿HGLI
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. $Q\ SHUVRQ WKDW KDV ¿OHG D
return required by section 6050Y(a)(1)
and this section with respect to a reportDEOH SROLF\ VDOH PXVW ¿OH D FRUUHFWHG UHturn 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) ([FHSWLRQVWRUHTXLUHPHQWWR¿OH—
(1) An acquirer that is a foreign person is
QRWUHTXLUHGWR¿OHDQLQIRUPDWLRQUHWXUQ
under paragraph (a) of this section with respect to a reportable policy sale unless—
(i) 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
(ii) 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).

November 18, 2019

$Q DFTXLUHU LV QRW UHTXLUHG WR ¿OH
an information return under paragraph (a)
of this section with respect to a reportable
policy sale payment to a reportable policy sale payment recipient other than the
seller if the reportable policy sale payment
is reported by the acquirer under section
6041 or 6041A.
$Q DFTXLUHU LV QRW UHTXLUHG WR ¿OH
an information return under paragraph (a)
of this section with respect to the issuance
RIDOLIHLQVXUDQFHFRQWUDFWLQDQH[FKDQJH
pursuant to section 1035. However, the acquirer is required to furnish the 6050Y(a)
issuer with the statement required under
paragraph (d)(2) of this section as if the
DFTXLUHU ZHUH UHTXLUHG WR ¿OH DQ LQIRUmation return under paragraph (a) of this
section.
(g) Cross-reference to penalty provisions—(1) )DLOXUH WR ¿OH FRUUHFW LQIRUmation return. For provisions relating
to the penalty provided for failure to
¿OH WLPHO\ D FRUUHFW LQIRUPDWLRQ UHWXUQ
required under section 6050Y(a)(1)
and this section, see section 6721 and
§301.6721-1 of this chapter. See section
6724(a) and §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 timely a correct
VWDWHPHQWWRLGHQWL¿HGSHUVRQVXQGHUVHFtion 6050Y(a)(2) and this section, see section 6722 and §301.6722-1 of this chapter.
See section 6724(a) and §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. 6. Section 1.6050Y-3 is added to
read as follows:

The return must include the following information with respect to the seller:
 7KH QDPH DGGUHVV DQG WD[SD\HU
LGHQWL¿FDWLRQQXPEHU7,1RIWKHVHOOHU
(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) 8QL¿HG UHSRUWLQJ 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
LVGHHPHGVDWLV¿HGLIWKHLQIRUPDWLRQUHquired 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) 7LPH DQG SODFH IRU ¿OLQJ ([FHSW
as provided in this paragraph (c), returns
required to be made under paragraph (a)
RIWKLVVHFWLRQPXVWEH¿OHGZLWKWKH,QWHUnal Revenue Service Center designated on
the prescribed form or in its instructions
on or before February 28 (March 31 if
¿OHGHOHFWURQLFDOO\RIWKH\HDUIROORZLQJ
the calendar year in which the reportable
policy sale or the transfer 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
§1.6050Y-3 Information reporting by
calendar year following the year in which
6050Y(b) issuers for reportable policy
the transfer occurred, returns required to
sales and transfers of life insurance
be made under paragraph (a) of this seccontracts to foreign persons.
WLRQPXVWEH¿OHGE\WKHODWHURI)HEUXDU\
0DUFKLI¿OHGHOHFWURQLFDOO\RIWKH
(a) Requirement of reporting. ([FHSW calendar year following the year in which
as provided in paragraph (f) of this sec- the transfer occurred or thirty days after
tion, each 6050Y(b) issuer that receives the date notice is received. However, see
an RPSS or any notice of a transfer to a §1.6050Y-1(b)(5) for transition rules.
IRUHLJQ SHUVRQ PXVW ¿OH DQ LQIRUPDWLRQ
(d) Requirement of and time for furreturn with the Internal Revenue Service nishing statements—(1) Requirement of
(IRS) with respect to each seller in the furnishing statement. Every 6050Y(b) isform and manner prescribed by the IRS. VXHU¿OLQJDUHWXUQUHTXLUHGE\SDUDJUDSK

1082

Bulletin No. 2019–47

(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
RIWKHSHUVRQ¿OLQJWKHUHWXUQ7KLVFRQWDFW
information must provide direct access to
a person that can answer questions about
the statement.
(2) Time for furnishing statement. ([cept as 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. However, see
§1.6050Y-1(b)(3) for transition rules.
(3) 8QL¿HG UHSRUWLQJ 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
LVGHHPHGVDWLV¿HGLIWKHLQIRUPDWLRQUHquired 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)
LVVXHU WKDW KDV ¿OHG D UHWXUQ UHTXLUHG E\
section 6050Y(b)(1) and this section with
respect to a reportable policy sale or transfer of an insurance contract to a foreign
SHUVRQPXVW¿OHDFRUUHFWHGUHWXUQZLWKLQ
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

Bulletin No. 2019–47

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) ([FHSWLRQVWRUHTXLUHPHQWWR¿OH. A
<ELVVXHULVQRWUHTXLUHGWR¿OHDQ
information return under paragraph (a) of
this section if paragraph (f)(1), (2), or (3)
of this section applies.
 ([FHSW DV SURYLGHG LQ WKLV SDUDgraph (f)(1), the 6050Y(b) issuer obtains
documentation upon which it may rely to
treat a seller of a life insurance contract
RU LQWHUHVW WKHUHLQ DV D IRUHLJQ EHQH¿FLDO
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
ZULWWHQ FHUWL¿FDWLRQ IURP WKH HQWLW\ WKDW
QREHQH¿FLDORZQHURIDQ\SRUWLRQRIWKH
proceeds of the sale is a United States person. In such a case, the issuer may rely
XSRQ WKH ZULWWHQ FHUWL¿FDWLRQ WR WUHDW WKH
SDUWQHUVKLSRUWUXVWDVDIRUHLJQEHQH¿FLDO
owner for purposes of this paragraph (f)
(1) provided that the seller does not have
actual knowledge that a United States
SHUVRQLVWKHEHQH¿FLDORZQHURIDOORUD
portion of the proceeds of the sale. See
†FLL IRU WKH GH¿QLWLRQ RI
EHQH¿FLDORZQHUWKDWDSSOLHVIRUSXUSRVHV
of this paragraph (f)(1). Additionally, for
FHUWLI\LQJLWVVWDWXVDVDIRUHLJQEHQH¿FLDO
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,
&HUWL¿FDWHRI)RUHLJQ3HUVRQ¶V&ODLPWKDW
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

1083

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),
WKH H[FHSWLRQ WR UHSRUWLQJ GHVFULEHG LQ
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 an 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 clasVL¿HGWKHVHOOHUDVD8QLWHG6WDWHVSHUVRQ
in its books and records.
(3) The RPSS received by the 6050Y(b)
issuer is with respect to the 6050Y(b) issuer’s issuance of a life insurance contract to
DSROLF\KROGHULQDQH[FKDQJHSXUVXDQWWR
section 1035.
(g) Cross-reference to penalty provisions—(1) )DLOXUHWR¿OHFRUUHFWLQIRUPDtion return. For provisions relating to the
SHQDOW\ SURYLGHG IRU IDLOXUH WR ¿OH WLPHly a correct information return required
under section 6050Y(b)(1) and this section, see section 6721 and §301.6721-1
of this chapter. See section 6724(a) and
§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 timely a correct
VWDWHPHQWWRLGHQWL¿HGSHUVRQVXQGHUVHFtion 6050Y(b)(2) and this section, see section 6722 and §301.6722-1 of this chapter.
See section 6724(a) and §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
SD\RUVIRUUHSRUWDEOHGHDWKEHQH¿WV
(a) Requirement of reporting.([FHSWDV
provided in paragraph (e) of this section,
every person that is a payor of reportable
GHDWK EHQH¿WV GXULQJ DQ\ FDOHQGDU \HDU
PXVW¿OHDVHSDUDWHLQIRUPDWLRQUHWXUQIRU
such calendar year with the Internal Rev-

November 18, 2019

enue Service (IRS) for each reportable
GHDWK EHQH¿WV SD\PHQW UHFLSLHQW LQ WKH
form and manner prescribed by the IRS.
The return must include the following information with respect to the reportable
GHDWKEHQH¿WVSD\PHQWUHFLSLHQWWRZKLFK
the return relates:
 7KH QDPH DGGUHVV DQG WD[SD\HU
LGHQWL¿FDWLRQQXPEHU7,1RIWKHSD\RU
(2) The name, address, and TIN of the
UHSRUWDEOH GHDWK EHQH¿WV SD\PHQW UHFLSLent;
(3) The date of the payment;
(4) The gross amount of reportable
GHDWKEHQH¿WVSDLGWRWKHUHSRUWDEOHGHDWK
EHQH¿WVSD\PHQWUHFLSLHQWGXULQJWKHWD[able year;
(5) The payor’s estimate of 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 reportDEOHGHDWKEHQH¿WVSD\PHQWUHFLSLHQWZDV
paid; and
(6) Any other information that is required by the form or its instructions.
(b) 7LPH DQG SODFH IRU ¿OLQJ Returns
required to be made under this section
PXVW EH ¿OHG ZLWK WKH ,QWHUQDO 5HYHQXH
Service Center designated in the instructions for the form on or before February
0DUFKLI¿OHGHOHFWURQLFDOO\RIWKH
year following the calendar year in which
WKH SD\PHQW RI UHSRUWDEOH GHDWK EHQH¿WV
was made. However, see §1.6050Y-1(b)
(5) for transition rules.
(c) Requirement of and time for furnishing statements—(1) Requirement of
furnishing statement. Every person reTXLUHGWR¿OHDQLQIRUPDWLRQUHWXUQXQGHU
paragraph (a) of this section must furnish
WRHDFKUHSRUWDEOHGHDWKEHQH¿WVSD\PHQW
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
WKDWUHSRUWDEOHGHDWKEHQH¿WVSD\PHQWUHcipient 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
UHSRUWDEOH GHDWK EHQH¿WV SD\PHQW UHFLSL-

November 18, 2019

ent must be furnished on or before January 31 of the year following the calendar
year in which the payment of reportable
GHDWK EHQH¿WV ZDV PDGH +RZHYHU VHH
§1.6050Y-1(b)(4) for transition rules.
(d) Notice of rescission of a reportable
policy sale. $Q\ SHUVRQ WKDW KDV ¿OHG D
return required by section 6050Y(c) and
this section with respect to a payment of
UHSRUWDEOH GHDWK EHQH¿WV PXVW ¿OH D FRUrected return within 15 calendar days of
recovering any portion of the reportable
GHDWK EHQH¿WV SD\PHQW IURP WKH UHSRUWDEOH GHDWK EHQH¿WV SD\PHQW UHFLSLHQW DV
a result of the rescission of the reportable policy sale. Any person that has furnished a written statement under section
6050Y(c)(2) and this section with respect
WRDSD\PHQWRIUHSRUWDEOHGHDWKEHQH¿WV
must furnish the recipient of that statement with a corrected statement within 15
calendar days of recovering any portion
RI WKH UHSRUWDEOH GHDWK EHQH¿WV SD\PHQW
IURP WKH UHSRUWDEOH GHDWK EHQH¿WV SD\ment recipient as a result of the rescission
of the reportable policy sale.
(e) ([FHSWLRQVWRUHTXLUHPHQWWR¿OH A
SD\RULVQRWUHTXLUHGWR¿OHDQLQIRUPDWLRQ
return under paragraph (a) of this section
with respect to a payment of reportable
GHDWK EHQH¿WV LI SDUDJUDSK H  RU
(3) of this section applies.
([FHSWDVSURYLGHGLQWKLVSDUDJUDSK
(e)(1), the payor obtains documentation in
accordance with §1.1441-1(e)(1)(ii) upon
which it may rely to treat the reportable
GHDWKEHQH¿WVSD\PHQWUHFLSLHQWDVDIRUHLJQ EHQH¿FLDO RZQHU RI WKH UHSRUWDEOH
GHDWK EHQH¿WV DSSO\LQJ LQ VXFK FDVH WKH
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
RUWUXVWWKDWLVDUHSRUWDEOHGHDWKEHQH¿WV
recipient, in addition to documentation
establishing the entity’s foreign status, a
ZULWWHQFHUWL¿FDWLRQIURPWKHHQWLW\WKDWQR
EHQH¿FLDORZQHURIDQ\SRUWLRQRIWKHUHSRUWDEOHGHDWKEHQH¿WVSD\PHQWLVD8QLWed States person. In such a case, a payor
PD\UHO\XSRQWKHZULWWHQFHUWL¿FDWLRQWR
treat the partnership or trust as a foreign
EHQH¿FLDORZQHUIRUSXUSRVHVRIWKLVSDUD-

1084

graph (e)(1) provided that the payor does
not have actual knowledge that a United
6WDWHVSHUVRQLVWKHEHQH¿FLDORZQHURIDOO
or a portion of the reportable death benH¿WVSD\PHQW6HH†FLLIRU
WKHGH¿QLWLRQRIEHQH¿FLDORZQHUWKDWDSplies for purposes of this paragraph (e)(1).
Other due diligence or reporting requirements may, however, apply to a payor that
UHOLHV RQ WKH H[FHSWLRQ VHW IRUWK LQ WKLV
paragraph (e)(1). See §1.1441-5(c) and
(e) (determination of payees of foreign
partnerships and certain foreign trusts
for amounts subject to withholding under
§1.1441-2(a)) and §1.1461-1(b) and (c)
(amounts subject to reporting for chapter
3 purposes).
(2) The buyer obtained the life insurance contract (or interest therein) unGHU ZKLFK UHSRUWDEOH GHDWK EHQH¿WV DUH
paid in a reportable policy sale to which
WKH H[FHSWLRQ WR UHSRUWLQJ GHVFULEHG LQ
§1.6050Y-3(f)(2) applies.
(3) The payor never received, and has
no knowledge of any issuer having received, an RPSS with respect to the interest in a life insurance contract with respect
WRZKLFKWKHUHSRUWDEOHGHDWKEHQH¿WVDUH
paid.
(f) Cross-reference to penalty provisions—(1) )DLOXUHWR¿OHFRUUHFWLQIRUPDtion return. For provisions relating to the
SHQDOW\ SURYLGHG IRU IDLOXUH WR ¿OH WLPHly a correct information return required
under section 6050Y(c)(1) and this section, see section 6721 and §301.6721-1
of this chapter. See section 6724(a) and
§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 timely a correct
VWDWHPHQWWRLGHQWL¿HGSHUVRQVXQGHUVHFtion 6050Y(c)(2) and this section, see section 6722 and §301.6722-1 of this chapter.
See section 6724(a) and §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.
Sunita Lough,
Deputy Commissioner for Services
and Enforcement.
Approved: October 15, 2019.

Bulletin No. 2019–47

David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).
)LOHGE\WKH2I¿FHRIWKH)HGHUDO5HJLVWHURQ2Ftober 25, 2019, 4:15 p.m., and published in the issue
of the Federal Register for October 31, 2019, 84 F.R.
58460)

included in these regulations had been requested under control number 1545-2267.
%HFDXVH RI WKH UHPRYDO RI WKH ¿QDO GRFumentation regulations, the information
burden has been removed and control
number 1545-2267 is no longer needed.
Background

26 CFR 1.385-2 [Removed]

I. 2YHUYLHZ

TD 9880

Section 385(a) of the Internal ReveQXH&RGH&RGHDXWKRUL]HVWKH6HFUHWDU\
to “prescribe such regulations as may be
necessary or appropriate to determine
whether an interest in a corporation is to
be treated for purposes of [the Code] as
stock or indebtedness (or as in part stock
and in part indebtedness).” Section 385(b)
requires such regulations to “set forth factors which are to be taken into account in
determining with respect to a particular
factual situation whether a debtor-creditor
UHODWLRQVKLSH[LVWVRUDFRUSRUDWLRQVKDUHKROGHU UHODWLRQVKLS H[LVWV´  6HFWLRQ
E DOVR HQXPHUDWHV D QRQH[FOXVLYH
list of factors potentially to be included in
those regulations.
On October 21, 2016, the Department
of the Treasury (Treasury Department)
DQGWKH,56SXEOLVKHG¿QDODQGWHPSRUDU\
regulations (T.D. 9790) under section 385
in the Federal Register (81 FR 72858).
7KH¿QDODQGWHPSRUDU\UHJXODWLRQVXQGHU
section 385 (Section 385 Regulations) include rules set forth in §1.385-2, which establish minimum documentation requirePHQWV WKDW RUGLQDULO\ PXVW EH VDWLV¿HG
in order for purported debt obligations
among related parties to be treated as debt
IRU)HGHUDOWD[SXUSRVHV'RFXPHQWDWLRQ
Regulations). The Section 385 Regulations also include §§1.385-3, 1.385-3T,
and 1.385-4T, which treat as stock certain
debt that is issued by a corporation to a
controlling shareholder in a distribution
or in another related-party transaction that
achieves an economically similar result
(Distribution Regulations).
The Documentation Regulations, as
proposed, would have been applicable
with respect to interests issued or deemed
LVVXHGRQRUDIWHUWKHGDWHRI¿QDOL]DWLRQ
+RZHYHUFRPPHQWHUVH[SUHVVHGFRQFHUQ
that, if the Documentation Regulations
were to be applicable as of that date,
WD[SD\HUV ZRXOG ODFN DGHTXDWH WLPH WR

DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Removal of Section 385
Documentation Regulations
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document removes
¿QDO UHJXODWLRQV VHWWLQJ IRUWK PLQLPXP
documentation requirements that ordiQDULO\ PXVW EH VDWLV¿HG LQ RUGHU IRU FHUtain related-party interests in a corporation
to be treated as indebtedness for Federal
WD[SXUSRVHV7KLVGRFXPHQWDOVRDGRSWV
FRQIRUPLQJ DPHQGPHQWV WR RWKHU ¿QDO
UHJXODWLRQV WR UHÀHFW WKH UHPRYDO RI WKH
GRFXPHQWDWLRQUHJXODWLRQV7KH¿QDOUHJulations removed or amended by this document generally affect corporations that
issue purported indebtedness to related
corporations or partnerships.
DATES: These regulations are effective
November 4, 2019.
FOR FURTHER INFORMATION CONTACT: Austin Diamond-Jones, (202)
317-5363 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act (44 U.S.C. 3501-3521),
approval for the information collection

Bulletin No. 2019–47

prepare for compliance with the requirements set forth in those regulations. To
DVVLVWWD[SD\HUVLQWKHLUSUHSDUDWLRQIRUWKH
Documentation Regulations, the Treasury
Department and the IRS made the regulations applicable with respect to interests
issued or deemed issued after January 1,
2018. See §§1.385-1(f), 1.385-2(d)(2)
(iii), and 1.385-2(i).
II. Executive Order 13789

1085

([HFXWLYH 2UGHU  (2 
issued on April 21, 2017, instructed the
6HFUHWDU\ WR UHYLHZ DOO VLJQL¿FDQW WD[
regulations issued on or after January 1,
2016, and to take concrete action to alleviate the burdens of regulations that (i)
LPSRVHDQXQGXH¿QDQFLDOEXUGHQRQ86
WD[SD\HUV LL DGG XQGXH FRPSOH[LW\ WR
WKH )HGHUDO WD[ ODZV RU LLL H[FHHG WKH
statutory authority of the IRS. E.O. 13789
further instructed the Secretary to submit
to the President within 60 days a report
)LUVW 5HSRUW WKDW LGHQWL¿HV UHJXODWLRQV
that meet these criteria. Notice 2017-38
(2017-30 I.R.B. 147 (July 24, 2017)) included the Section 385 Regulations in a
OLVW RI HLJKW UHJXODWLRQV LGHQWL¿HG E\ WKH
Secretary in the First Report as meeting at
OHDVWRQHRIWKH¿UVWWZRFULWHULDVSHFL¿HG
in E.O. 13789. In addition, E.O. 13789
instructed the Secretary to submit to the
President a second report (Second Report)
WKDWUHFRPPHQGHGVSHFL¿FDFWLRQVWRPLWigate the burden imposed by regulations
LGHQWL¿HGLQWKH)LUVW5HSRUW
III. Additional Delay in Application of
Documentation Regulations
As noted in Part I of this Background
section, the Treasury Department and the
IRS had originally delayed the applicability date of the Documentation Regulations
WRKHOSWD[SD\HUVSUHSDUHIRUFRPSOLDQFH
ZLWK WKRVH UXOHV  7D[SD\HUV KRZHYHU
FRQWLQXHG WR H[SUHVV FRQFHUQ UHJDUGLQJ
the timing and potential application of the
Documentation Regulations. Based on
those continued concerns, and in light of
the contemplated additional action regarding the Section 385 Regulations that resulted from E.O. 13789 review, the Treasury Department and the IRS determined
that a further delay in the application of
the Documentation Regulations would

November 18, 2019