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

Bill: 115-hr-1262
Sponsor: full_name: Rep. Tiberi, Patrick J. [R-OH-12]
Introduced: 2017-02-28
Policy area: Taxation
Subjects: Employee benefits and pensions

Income tax exclusion

Life, casualty, property insurance

Tax administration and collection, taxpayers
Latest action: action_date: 2017-02-28
text: Referred to the House Committee on Ways and Means.

Summaries:
action_date: 2017-02-28
action_desc: Introduced in House
text: <p>This bill amends the Internal Revenue Code to modify the tax treatment of certain life insurance contract transactions. </p> <p>The bill establishes reporting requirements for acquisitions of life insurance contracts in a reportable policy sale. Specified details must be reported regarding: </p> <ul> <li>the payments, contracts, and people involved in the acquisition; </li> <li>the seller's basis; and </li> <li>payments of death benefits. </li> </ul> <p>A &quot;reportable policy sale&quot; 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. </p> <p>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. </p> <p>(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.)</p>

tv_txt: I 115th CONGRESS 1st Session H. R. 1262 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.

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: 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. 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. 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.