Title: To amend the Internal Revenue Code of 1986 to clarify the tax treatment of certain life insurance contract transactions, and for other purposes.
Policy area: Taxation

Summary:
This bill amends the Internal Revenue Code to modify the tax treatment of certain life insurance contract transactions.
The bill establishes reporting requirements for acquisitions of life insurance contracts in a reportable policy sale. Specified details must be reported regarding:
A "reportable policy sale" is the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in such life insurance contract.
The bill also: (1) specifies that no basis adjustment shall be made for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract; and (2) exempts the transfer of a life insurance contract, or any interest therein, in a reportable policy sale from the transfer for valuable consideration rule.
(Under current law, the transfer for valuable consideration rule provides that, if a life insurance contract or an interest in a contract is transferred for a valuable consideration, the tax exclusion for amounts received under a life insurance contract due to the death of the insured is limited to the sum of the actual value of the consideration and the premiums and other amounts subsequently paid by the transferee.)

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1262 Introduced in House (IH)]

<DOC>






115th CONGRESS
  1st Session
                                H. R. 1262

To amend the Internal Revenue Code of 1986 to clarify the tax treatment 
    of certain life insurance contract transactions, and for other 
                               purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           February 28, 2017

 Mr. Tiberi (for himself and Mr. Kind) introduced the following bill; 
         which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to clarify the tax treatment 
    of certain life insurance contract transactions, and for other 
                               purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. TAX REPORTING FOR LIFE SETTLEMENT TRANSACTIONS.

    (a) In General.--Subpart B of part III of subchapter A of chapter 
61 of the Internal Revenue Code of 1986 is amended by adding at the end 
the following new section:

``SEC. 6050X. RETURNS RELATING TO CERTAIN LIFE INSURANCE CONTRACT 
              TRANSACTIONS.

    ``(a) Requirement of Reporting of Certain Payments.--
            ``(1) In general.--Every person who acquires a life 
        insurance contract or any interest in a life insurance contract 
        in a reportable policy sale during any taxable year shall make 
        a return for such taxable year (at such time and in such manner 
        as the Secretary shall prescribe) setting forth--
                    ``(A) the name, address, and TIN of such person,
                    ``(B) the name, address, and TIN of each recipient 
                of payment in the reportable policy sale,
                    ``(C) the date of such sale,
                    ``(D) the name of the issuer of the life insurance 
                contract sold and the policy number of such contract, 
                and
                    ``(E) the amount of each payment.
            ``(2) Statement to be furnished to persons with respect to 
        whom information is required.--Every person required to make a 
        return under this subsection shall furnish to each person whose 
        name is required to be set forth in such return a written 
        statement showing--
                    ``(A) the name, address, and phone number of the 
                information contact of the person required to make such 
                return, and
                    ``(B) the information required to be shown on such 
                return with respect to such person, except that in the 
                case of an issuer of a life insurance contract, such 
                statement is not required to include the information 
                specified in paragraph (1)(E).
    ``(b) Requirement of Reporting of Seller's Basis in Life Insurance 
Contracts.--
            ``(1) In general.--Upon receipt of the statement required 
        under subsection (a)(2) or upon notice of a transfer of a life 
        insurance contract to a foreign person, each issuer of a life 
        insurance contract shall make a return (at such time and in 
        such manner as the Secretary shall prescribe) setting forth--
                    ``(A) the name, address, and TIN of the seller who 
                transfers any interest in such contract in such sale,
                    ``(B) the investment in the contract (as defined in 
                section 72(e)(6)) with respect to such seller, and
                    ``(C) the policy number of such contract.
            ``(2) Statement to be furnished to persons with respect to 
        whom information is required.--Every person required to make a 
        return under this subsection shall furnish to each person whose 
        name is required to be set forth in such return a written 
        statement showing--
                    ``(A) the name, address, and phone number of the 
                information contact of the person required to make such 
                return, and
                    ``(B) the information required to be shown on such 
                return with respect to each seller whose name is 
                required to be set forth in such return.
    ``(c) Requirement of Reporting With Respect to Reportable Death 
Benefits.--
            ``(1) In general.--Every person who makes a payment of 
        reportable death benefits during any taxable year shall make a 
        return for such taxable year (at such time and in such manner 
        as the Secretary shall prescribe) setting forth--
                    ``(A) the name, address, and TIN of the person 
                making such payment,
                    ``(B) the name, address, and TIN of each recipient 
                of such payment,
                    ``(C) the date of each such payment, and
                    ``(D) the amount of each such payment.
            ``(2) Statement to be furnished to persons with respect to 
        whom information is required.--Every person required to make a 
        return under this subsection shall furnish to each person whose 
        name is required to be set forth in such return a written 
        statement showing--
                    ``(A) the name, address, and phone number of the 
                information contact of the person required to make such 
                return, and
                    ``(B) the information required to be shown on such 
                return with respect to each recipient of payment whose 
                name is required to be set forth in such return.
    ``(d) Definitions.--For purposes of this section:
            ``(1) Payment.--The term `payment' means the amount of cash 
        and the fair market value of any consideration transferred in a 
        reportable policy sale.
            ``(2) Reportable policy sale.--The term `reportable policy 
        sale' has the meaning given such term in section 101(a)(3)(B).
            ``(3) Issuer.--The term `issuer' means any life insurance 
        company that bears the risk with respect to a life insurance 
        contract on the date any return or statement is required to be 
        made under this section.
            ``(4) Reportable death benefits.--The term `reportable 
        death benefits' means amounts paid by reason of the death of 
        the insured under a life insurance contract that has been 
        transferred in a reportable policy sale with respect to which, 
        a statement is required to be furnished under subsection 
        (a)(2), or a notice of a transfer of a life insurance contract 
        to a foreign person has been received.''.
    (b) Clerical Amendment.--The table of sections for subpart B of 
part III of subchapter A of chapter 61 of the Internal Revenue Code of 
1986 is amended by inserting after the item relating to section 6050W 
the following new item:

``Sec. 6050X. Returns relating to certain life insurance contract 
                            transactions.''.
    (c) Conforming Amendments.--
            (1) Section 6724(d)(1)(B) of the Internal Revenue Code of 
        1986 is amended by striking ``or'' at the end of clause (xxiv), 
        by adding ``or'' at the end of clause (xxv), and by inserting 
        after clause (xxv) the following new clause:
                            ``(xxvi) section 6050X (relating to returns 
                        relating to certain life insurance contract 
                        transactions),''.
            (2) Section 6724(d)(2) of such Code is amended by striking 
        ``or'' at the end of subparagraph (HH), by striking the period 
        at the end of subparagraph (II) and inserting ``, or'', and by 
        inserting after subparagraph (II) the following new 
        subparagraph:
                    ``(JJ) subsection (a)(2), (b)(2), or (c)(2) of 
                section 6050X (relating to returns relating to certain 
                life insurance contract transactions).''.
            (3) Section 6047 of such Code is amended--
                    (A) by redesignating subsection (g) as subsection 
                (h),
                    (B) by inserting after subsection (f) the following 
                new subsection:
    ``(g) Information Relating to Life Insurance Contract 
Transactions.--This section shall not apply to any information which is 
required to be reported under section 6050X.'', and
                    (C) by adding at the end of subsection (h), as so 
                redesignated, the following new paragraph:
            ``(4) For provisions requiring reporting of information 
        relating to certain life insurance contract transactions, see 
        section 6050X.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to--
            (1) reportable policy sales after December 31, 2017, and
            (2) reportable death benefits paid after December 31, 2017.

SEC. 2. CLARIFICATION OF TAX BASIS OF LIFE INSURANCE CONTRACTS.

    (a) In General.--Paragraph (1) of section 1016(a) of the Internal 
Revenue Code of 1986 is amended by striking subparagraph (A) and all 
that follows and inserting the following:
                    ``(A) for--
                            ``(i) taxes or other carrying charges 
                        described in section 266, or
                            ``(ii) expenditures described in section 
                        173 (relating to circulation expenditures),
                for which deductions have been taken by the taxpayer in 
                determining taxable income for the taxable year or 
                prior taxable years, or
                    ``(B) for mortality, expense, or other reasonable 
                charges incurred under an annuity or life insurance 
                contract.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to transactions entered into after August 25, 2009.

SEC. 3. EXCEPTION TO TRANSFER FOR VALUABLE CONSIDERATION RULES.

    (a) In General.--Subsection (a) of section 101 of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
paragraph:
            ``(3) Exception to valuable consideration rules for 
        commercial transfers.--
                    ``(A) In general.--The second sentence of paragraph 
                (2) shall not apply in the case of a transfer of a life 
                insurance contract, or any interest therein, which is a 
                reportable policy sale.
                    ``(B) Reportable policy sale.--
                            ``(i) In general.--For purposes of this 
                        paragraph, the term `reportable policy sale' 
                        means the acquisition of an interest in a life 
                        insurance contract, directly or indirectly, if 
                        the acquirer has no substantial family, 
                        business, or financial relationship with the 
                        insured apart from the acquirer's interest in 
                        such life insurance contract.
                            ``(ii) Indirect acquisitions.--For purposes 
                        of clause (i), the term `indirectly' applies to 
                        the acquisition of an interest in a 
                        partnership, trust, or other entity that holds 
                        an interest in the life insurance contract 
                        unless--
                                    ``(I) the insured of the life 
                                insurance contract is an existing or 
                                former employee, officer, director, 5-
                                percent owner, or independent 
                                contractor of the acquired entity or 
                                its subsidiaries or predecessors, and
                                    ``(II) no more than 50 percent of 
                                the gross value of the assets of the 
                                acquired entity consists of life 
                                insurance contracts or the parties 
                                demonstrate to the satisfaction of the 
                                Secretary that the acquisition of the 
                                life insurance is not the principal 
                                purpose of the acquired entity.
                            ``(iii) Determination of gross value of 
                        assets.--For purposes of clause (ii), the term 
                        `gross value of assets' means, with respect to 
                        any acquired entity, the sum of--
                                    ``(I) in the case of assets of the 
                                acquired entity which are life 
                                insurance policies or annuity or 
                                endowment contracts, the unborrowed 
                                policy cash values of such policies and 
                                contracts, and
                                    ``(II) in the case of assets of the 
                                acquired entity not described in 
                                subclause (I), the adjusted bases 
                                (within the meaning of section 1016) of 
                                such assets.''.
    (b) Conforming Amendment.--Paragraph (1) of section 101(a) of the 
Internal Revenue Code of 1986 is amended by striking ``paragraph (2)'' 
and inserting ``paragraphs (2) and (3)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers after December 31, 2017.
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