Locke Lord QuickStudy: Reportable Policy Sales - IRC Section 6050Y - Timing for Reporting to the IRS on Form 1099-LS Copy A, providing statements to issuing Life insurance Companies on IRS Form 1099-LS Copy C and to Payment Recipients on Form 1099-LS Copy B

In this article we summarize the reporting requirements under IRS Form 1099-LS relating to IRC Section 6050Y “Reportable Policy Sales”.¹  The reporting requirements apply to all Reportable Policy Sales after December 31, 2018.

Form 1099-LS is a four part form; Copy A for the IRS, Copy B to be furnished to each payment recipient, including the seller of the life insurance policy or an interest in the life insurance policy (a ‘Seller’), Copy C for the life insurance company that administers the life insurance policy (referred to on the forms as the ‘Issuer’) and Copy D to be retained by the acquirer.  There will be multiple Copy As, one identifying to the IRS each payment recipient; there will be multiple Copy Bs, and each Copy B furnished to a payment recipient would contain only that payment information relating to that payment recipient; and there will be only one Copy C which would only identify the life insurance policy Seller and which does not require the disclosure of the amount paid to the Seller.  The TIN of the Seller and payment recipients may be truncated on all forms except on Copies A filed with the IRS.  An acquirer’s TIN may not be truncated on any form.

Copy A is not yet available from the IRS.  An acquirer may submit to the IRS a scannable Copy A or file Copy A electronically (see below).  The IRS does not not currently provide an online, fill-in form option for Copy A.  The ‘official’ printed version of Copy A must be scannable, but the online version of Copy A, printed from the IRS website, is not, and the IRS has indicated that it will not accept a Copy A that is not on the official, scannable form.  The IRS has stated that an acquirer should visit www.IRS.gov/orderforms to order official IRS information returns, which are purported to include a scannable Copy A for filing with the IRS and all other applicable copies of the form.  An acquirer is instructed by the IRS to click on Employer and Information Returns, and the IRS states that it mail to the acquirer the forms the acquirer requests, together with instructions, and any publications the acquirer may wish to order.  However, Form 1099-LS is not yet available in scannable form from the IRS.  Electronic filing may require the use of the IRS Filing Information Returns Electronically (FIRE), www.IRS.gov/FIRE, or the IRS Affordable Care Act Information Returns (AIR) program, www.irs.gov/AIR.  For the latest information about developments related to Form 1099-LS and its instructions, please click here.

Online fillable Copies B, C, and D.  Copies B, C, and D have been made fillable online by the IRS in a PDF format and are available here.  An acquirer can complete these copies online for furnishing reportable policy sale statements to the administering life insurance companies, payment recipients and for retention in the acquirer’s files.  In other words, an acquirer can complete the pdf form on line, print it, (or print the blank form, complete it by hand or otherwise) and send it to the administering life insurance company and each payment recipient.  Copies B and C may be faxed, mailed or attached to an email in pdf format.  Acquirers are encouraged to coordinate with the life insurance companies to determine the preferred mode of transmission and electronic or physical address for statements to be provided to such life insurance companies.

Timing for the RPSS requirements for Reportable Policy Sales after October 31, 2019:

Form 1099-LS Copy C to the life insurance company that administers the life settlement policy:

• By the later of:
  (a) 20 days after the Reportable Policy Sale, or
  (b) 5 days after the expiration of any applicable state law rescission period.
• Form 1099-LS Copy C is a printable, fill-in form that may be completed by the acquirer and mailed or otherwise transmitted to the life insurance company that administers the life insurance policy.

Form 1099-LS Copy B to each Payment Recipient:

• By the later of:
  (a) for the acquisition of an interest in a life insurance contract between January 1, 2019, and October 31, 2019, February 28, 2020, or
  (b) for the acquisition of an interest in a life insurance contract after October 2019, February 15 of the calendar year following the calendar year in which the Reportable Policy Sale occurred.
• A payment recipient is any person that receives cash or other consideration in connection with a Reportable Policy Sale.  However, excluded from payment recipient reporting by the acquirer under IRC Section 6050Y(a) are (i) payments by an acquirer to payment recipients (other than the seller) with respect to payments reported by the acquirer pursuant to IRC Sections 6041 or 6041A, and (ii) payments by the acquirer to any person (other than the seller) of less than $600.
• Form 1099 LS Copy C is a printable, fill-in form that may be completed by the acquirer online or otherwise and mailed or otherwise transmitted to each payment recipient.

Form 1099-LS Copy A to the IRS – together with Form 1096:

• No later than February 28 of the calendar year following the calendar year in which the Reportable Policy Sale occurred (or March 31 of the calendar year following the calendar year in which the Reportable Policy Sale occurred, if filing electronically).
• When submitting the Form 1099-LS Copy A to the IRS, Copy A must be accompanied by an IRS Form 1096, Annual Summary and Transmittal of US Information Returns.  The Filer’s name is included on the form and, in situations where IRC Section 6050Y unified reporting has been elected, the designated filer should be identified which may not be the 6050Y acquirer indicated on the attached Form 1099-LS Copy A.  In the unified reporting situation, there will be multiple Copy As for the same life insurance policy, but the IRS permits ‘grouping’ the attached Copy As with respect to that life insurance policy and, therefore, one Form 1096 should suffice.  Item 6 on Form 1096 has been updated with a new box to be checked indicating the filing of Form(s) 1099-LS.  See https://www.irs.gov/pub/irs-pdf/f1096.pdf. 
• The Form 1096 submitted to the IRS must be in scannable format, just like the Form 1099-LS 
  Copy A.  The IRS instructions for Form 1096 state, “To order official IRS information returns, which include a scannable Form 1096 for filing with the IRS, visit www.IRS.gov/orderforms.  Click on Employer and Information Returns, and we’ll [the IRS] mail you the [scannable] forms you request and their instructions, as well as any publications you may order.”
• The instructions for Form 1096 indicate that the place of filing scannable paper returns is the IRS Processing Center for the Filer’s state.

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_{1 This article presents a simplified summary of the timing of statement and return requirements for direct acquirers of interests in life insurance contracts and does not describe the substantive information requirements of what must be included in each statement to the Issuer or payment recipients or the information return to the IRS.  Most indirect acquirers will be relieved of any Reportable Policy Sale Statement requirements for their indirect acquisitions after December 31, 2018, if the direct acquirer of the interest in the life insurance contract is not required to file a RPSS (for example, if the direct acquirer purchased a policy before January 1, 2019) or the direct acquirer files a RPSS with respect to its acquisition of a policy after December 31, 2018.  Read our earlier, more detailed article on IRC Section 6050Y generally.}