Form 1099-LS: Reportable Life Insurance Sale – A Complete Guide for 2025

If you've ever sold a life insurance policy—or purchased one from someone who wasn't a family member—you've entered the world of "reportable policy sales." That's where Form 1099-LS comes in. This IRS form tracks transactions when a life insurance contract changes hands in certain circumstances, helping the government monitor potentially taxable events. While it might sound complex, understanding Form 1099-LS is straightforward once you know the basics. Here's everything you need to know about this specialized tax form for 2025.

What the Form Is For

Form 1099-LS, officially titled "Reportable Life Insurance Sale," is used by the acquirer (buyer) of a life insurance policy to report the purchase to the IRS. The form documents what the IRS calls a "reportable policy sale"—generally any direct or indirect acquisition of an interest in a life insurance contract where the buyer has no substantial family, business, or financial relationship with the insured person (other than their interest in the policy itself). IRS.gov

Think of it this way: If you sell your life insurance policy to a stranger or a company specializing in buying life insurance (often called a "life settlement"), that's typically a reportable policy sale. The buyer must file Form 1099-LS with the IRS and provide copies to you (the seller), any brokers involved, and the insurance company that issued the policy.

The form serves multiple purposes. It alerts the IRS that a life insurance policy has been sold, documents the amount paid, and helps track the transaction for tax purposes. This matters because selling a life insurance policy can trigger tax consequences—the seller might owe taxes on gains above what they paid in premiums over the years.

Who gets reported? Any "payment recipient" in the transaction gets a Form 1099-LS. This includes the seller (the person who owned the policy), plus any brokers or intermediaries who received $600 or more from the sale. The insurance company that issued the policy also receives a copy (but only for the seller's transaction), so they know the policy ownership has changed. Instructions for Form 1099-LS

When You'd Use It (Including Late and Amended Filings)

Most people encounter Form 1099-LS in one of these situations:

If you're the buyer (acquirer): You must file Form 1099-LS whenever you purchase an interest in a life insurance policy in a reportable policy sale. This includes life settlement companies, investment funds that buy policies, and even individuals who purchase policies on the secondary market. You're required to file even if you're buying just a partial interest in a policy.

Standard filing timeline

For transactions occurring in 2025, acquirers must file Form 1099-LS with the IRS by February 28, 2026 (if filing on paper) or March 31, 2026 (if filing electronically). Recipients must receive their copies by January 31, 2026. General Instructions for Certain Information Returns

Late filings

If you miss the deadline, file as soon as possible. The IRS imposes penalties for late filing that increase based on how late you are: $60 per form if filed within 30 days of the deadline, $130 per form if filed 30 days late to August 1, and $320 per form after August 1 or if you don't file at all. Small businesses with average annual gross receipts of $5 million or less may qualify for reduced maximum penalties. General Instructions for Certain Information Returns

Amended returns (corrected forms)

If you discover an error after filing—perhaps you reported the wrong payment amount or used an incorrect taxpayer identification number—you must file a corrected Form 1099-LS. Check the "CORRECTED" box at the top of the form and enter the correct information. Furnish the corrected statement to recipients within 30 days of discovery, and file with the IRS as soon as possible.

Special circumstance—rescissions

If a reportable policy sale falls through (is rescinded), you must file a corrected Form 1099-LS within 15 calendar days of receiving notice of the rescission. This tight deadline ensures the IRS has current information about the failed transaction. Instructions for Form 1099-LS

Key Rules and Requirements for 2025

Several important rules govern Form 1099-LS in 2025:

Electronic filing threshold

As of 2024, the IRS lowered the e-filing requirement from 250 forms to just 10 forms (counting all information returns combined). If you file 10 or more Forms 1099 of any type during the year, you must file electronically. The IRS offers a free portal called IRIS (Information Reporting Intake System) for electronic filing. General Instructions for Certain Information Returns

What's reportable

Not every life insurance transaction triggers Form 1099-LS. Certain exceptions may apply, including transfers in Section 1035 exchanges (policy-for-policy swaps). You also don't need to file if another acquirer or third-party contractor is already reporting the transaction under unified reporting provisions. You may qualify for exceptions if you are a foreign person, if you report reportable policy sale payments under other sections, or if certain other regulatory conditions are met. Instructions for Form 1099-LS

Multiple payment recipients

A single policy sale might involve several payment recipients—the seller, a broker, and perhaps a lawyer or financial advisor. You must file a separate Form 1099-LS for each payment recipient who received payment in connection with the sale. However, non-seller recipients only need reporting if they received $600 or more.

Taxpayer identification numbers (TINs)

You must obtain and verify TINs for all payment recipients. For individuals, this is typically their Social Security number; for businesses, it's their Employer Identification Number. Use Form W-9 to request this information. Missing or incorrect TINs can subject you to penalties and may trigger backup withholding requirements. General Instructions for Certain Information Returns

Truncation rules

When providing copies to payment recipients (Copy B), you may truncate (partially hide) their TIN for privacy—showing only the last four digits. However, you must report the full TIN to the IRS on Copy A. Never truncate the acquirer's TIN on any form. Instructions for Form 1099-LS

Unified reporting

If multiple acquirers are involved in purchasing a single policy, they can designate one acquirer or hire a third-party information reporting contractor to file on behalf of everyone. This prevents duplicate reporting and simplifies compliance.

Step-by-Step (High Level)

While the form itself is relatively simple with only a few boxes, accuracy matters. Here's the high-level process:

Step 1: Gather information.

Before you begin, collect all relevant details: the insurance company's name, the policy number, the date of sale, the amount paid to each payment recipient, and each recipient's name, address, and TIN.

Step 2: Complete the acquirer section.

Enter your information as the filer—your name, address, telephone number, and TIN. If someone else handles questions about the form (like an accountant), include their contact information in the designated space. Instructions for Form 1099-LS

Step 3: Enter payment recipient information.

Fill in the recipient's TIN, name, and address. Double-check that names match IRS records exactly to avoid processing delays.

Step 4: Provide policy details.

Enter the issuer's name (the insurance company), the policy number, and the date of sale (Box 2). The date of sale is when the transfer of the life insurance contract interest occurs.

Step 5: Report the payment amount.

In Box 1, enter the total amount paid to this specific payment recipient. Note: Reporting the amount paid to the payment recipient is optional on Copy C (the issuer's copy) as the insurance company doesn't require payment amount information.

Step 6: File with the IRS.

Submit Copy A to the IRS by the deadline. If filing on paper, include Form 1096 as a transmittal. If filing electronically (required for 10+ forms), use the IRS IRIS system or another approved e-file provider. General Instructions for Certain Information Returns

Step 7: Distribute copies.

Furnish Copy B to the payment recipient by January 31. If the payment recipient is the seller, also provide Copy C to the insurance company's administrative office that handles ownership transfers.

Pro tip: The IRS offers fillable PDF versions of Copies B and C at IRS.gov/Form1099LS, making it easier to provide professional-looking statements to recipients.

Common Mistakes and How to Avoid Them

Many first-time filers stumble over these common errors:

Mistake 1: Failing to file when required.

Some acquirers mistakenly believe they don't need to file if the transaction seems "personal" or if they think no taxes are owed. Remember: if you're the acquirer in a reportable policy sale, you must file regardless of tax implications. The IRS uses this form to track transactions; they'll determine taxability separately.

How to avoid it: When in doubt, err on the side of filing. Review the exceptions list in the instructions carefully, and consult a tax professional if you're unsure whether your transaction qualifies for an exception.

Mistake 2: Using incorrect or missing TINs.

This is a common error on information returns. Incorrect TINs lead to IRS notices, potential penalties, and backup withholding requirements.

How to avoid it: Always request Form W-9 from payment recipients before the transaction. Use the IRS TIN Matching service (available through IRS e-services at IRS.gov) to verify TINs before filing. If a recipient refuses to provide their TIN, you may need to implement backup withholding. General Instructions for Certain Information Returns

Mistake 3: Missing the issuer copy requirement.

Many filers remember to send copies to payment recipients but forget that they must also provide Copy C to the insurance company when the payment recipient is the seller.

How to avoid it: Create a checklist: IRS (Copy A), payment recipient (Copy B), issuer if seller (Copy C), your records (keep Copy D). Don't consider the job complete until all copies are distributed.

Mistake 4: Reporting the wrong amount.

Box 1 should reflect the total amount paid to that specific payment recipient, not the entire sale price. If the sale price was $100,000 but the broker received $5,000, the broker's Form 1099-LS shows $5,000, not $100,000.

How to avoid it: Calculate each recipient's payment separately. Keep detailed transaction records showing how the total purchase price was distributed among all recipients.

Mistake 5: Missing the rescission deadline.

The standard 30-day correction window doesn't apply to rescissions—you have only 15 calendar days from receiving notice of the rescission to file a corrected form. Instructions for Form 1099-LS

How to avoid it: Set up an alert system. If you handle multiple transactions, create a procedure that flags rescissions immediately and fast-tracks corrected filings.

Mistake 6: Confusing Form 1099-LS with Form 1099-SB.

Form 1099-SB (Seller's Investment in Life Insurance Contract) is related but different—the insurance issuer files it to report the seller's investment in the contract. Don't assume someone else's Form 1099-SB filing covers your Form 1099-LS obligation. About Form 1099-SB

What Happens After You File

Once you submit Form 1099-LS, several things occur:

IRS processing: The IRS receives your filing and matches it against the payment recipient's tax return. They verify that TINs match their records and check whether the recipient reported any resulting income on their return. This data goes into the IRS's information matching system.

Recipient tax obligations: Payment recipients receive their copies and must determine their tax liability. For sellers, this often means calculating the gain on the sale (sale price minus adjusted basis, which is generally premiums paid minus any amounts previously received). Gains may be taxable as ordinary income.

Backup withholding: If you were unable to obtain a valid TIN or received notice from the IRS that backup withholding applies, you would have withheld 24% of the payment. In this case, you must report the withholding on Form 1099-LS and deposit that amount with the IRS using Form 945 (Annual Return of Withheld Federal Income Tax). General Instructions for Certain Information Returns

IRS verification notices: If the IRS detects a mismatch—perhaps the TIN doesn't match their records or a recipient didn't report expected income—they may send notices. You might receive a CP2100 or CP2100A notice if there are TIN mismatches, requiring you to correct your records and possibly request updated W-9 forms from recipients.

Record retention: Keep copies of all Forms 1099-LS and supporting documentation for at least four years. The IRS can audit information returns, and having complete records prevents complications if questions arise.

FAQs

Q1: I'm selling my life insurance policy to a company. Do I need to file Form 1099-LS?

No. The acquirer (buyer) files Form 1099-LS, not the seller. As the seller, you'll receive Copy B of the form showing what you were paid. You'll use this information when preparing your tax return to report any taxable gain from the sale.

Q2: What's the difference between Form 1099-LS and Form 1099-SB?

Form 1099-LS is filed by the policy acquirer (buyer) to report the purchase transaction and amounts paid. Form 1099-SB is filed by the insurance company (issuer) to report the seller's investment (basis) in the contract, helping the seller calculate taxable gain. Both forms work together to give the IRS and taxpayers a complete picture of the transaction. About Form 1099-SB

Q3: Are death benefits reported on Form 1099-LS?

No. Form 1099-LS only reports sales of life insurance policies while the insured is alive. Death benefits paid to beneficiaries are generally not taxable and don't trigger Form 1099-LS reporting. However, if the policy was previously sold in a reportable policy sale, the tax treatment may differ for the policy owner at the time of the insured's death.

Q4: What if I buy a policy from a family member?

The definition of reportable policy sale generally excludes transfers where the acquirer has a substantial family, business, or financial relationship with the insured person (apart from the acquirer's interest in the life insurance contract). However, the rules are nuanced. Review Regulations section 1.101-1(c)(2) or consult a tax professional for specific situations. Instructions for Form 1099-LS

Q5: Can I file Form 1099-LS electronically even if I have fewer than 10 forms?

Yes. While electronic filing is required for 10 or more information returns, anyone can choose to e-file through the IRS IRIS system regardless of volume. E-filing is faster, reduces errors, and provides immediate confirmation of receipt. Visit IRS.gov/IRIS for more information.

Q6: What happens if I file late or not at all?

Penalties apply for late or non-filing. Current penalties range from $60 to $320 per form depending on how late you file, with higher penalties for intentional disregard. Small businesses with average annual gross receipts of $5 million or less face lower maximum penalties. Beyond financial penalties, failure to file can trigger IRS inquiries and audits. General Instructions for Certain Information Returns

Q7: Do I report partial interests in life insurance policies?

Yes. If you acquire any interest in a life insurance contract in a reportable policy sale—even a fractional interest—you must file Form 1099-LS. Report the amount you paid for your particular interest. If multiple acquirers each buy portions of a policy, each files separately unless using unified reporting procedures. Instructions for Form 1099-LS

The Bottom Line

Form 1099-LS plays a crucial role in the IRS's oversight of life insurance policy sales, ensuring that potentially taxable transactions don't slip through the cracks. While the form itself is relatively simple to complete, the obligations surrounding it—obtaining accurate information, meeting tight deadlines, and providing copies to multiple parties—require careful attention to detail. By understanding who must file, when to file, and how to avoid common pitfalls, acquirers can fulfill their reporting obligations smoothly while helping sellers understand their tax obligations.

For the most current information and to access forms and instructions, visit IRS.gov/Form1099LS. When in doubt about specific transactions or complex situations, consult a tax professional who can provide guidance tailored to your circumstances.

‍