New Rules for Reportable Policy Sales

On October 31, 2019, the Treasury Department finalized rules detailing the requirements for reportable policy sales (RPS), which were created under the 2017 Tax Cuts and Jobs Act (TCJA) and apply to the direct and indirect transfer of life insurance contracts. Now, when there is an acquisition of an interest in a life insurance contract, in order to ensure that the death benefit retains its income tax-free treatment the acquirer must determine: 1) that there was not a RPS and 2) that an exception to the transfer for value (TFV) rule exists. For more insight as you navigate the RPS rules, we have created this in-depth piece.

These final regulations provide guidance for determining which transfers are considered to be RPS and how to report the policy sale if required. The final regulations also provide clarity for the COLI/BOLI market, which was directly impacted by 101(a)(3). We have created a decision tree to help you navigate the RPS rule and its potential impact on COLI/BOLI insurance policies. You can also review this summary of the final regulations provided by our partners at AALU. The final regulations came into effect on their release date, October 31, 2019, but may be applied to any RPS or any death benefits paid on a life insurance contract that was part of a RPS after December 31, 2017. All reporting statements for transactions occurring between December 31, 2018, and October 31, 2019, must be furnished by February 28, 2020.

Please do not hesitate to contact Kristin Bulat should you have any questions about reportable policy sales and how they may be impacting your clients' insurance transactions.