Form 1099-LS Checklist for 2018: Reportable Life Insurance Sales
Form 1099-LS reports reportable policy sales under IRC Section 6050Y, effective for sales after August 7, 2017. The 2018 tax year represents the first full calendar year of mandatory reporting. Acquirers must file Copy A with the IRS and furnish Copies B and C to payment recipients and issuers by specified deadlines.
Understanding Reportable Policy Sales
A reportable policy sale is any direct or indirect acquisition of a life insurance contract or interest where the acquirer has no substantial family, business, or financial relationship with the insured person, apart from the acquirer’s interest in the contract. This primarily affects life settlement transactions where policies are sold to unrelated parties.
The acquisition of an interest in a partnership, trust, or other entity that holds a life insurance contract may constitute an indirect acquisition, requiring Form 1099-LS filing.
Verify Your Filing Obligation
Confirm Acquirer Status
Verify you are the acquirer who acquired a life insurance contract or interest during 2018. The acquirer bears primary reporting responsibility and should not be confused with the insurance company issuer or the payment recipient who sold the contract.
Under the 2018 dual reporting structure, acquirers file Form 1099-LS while issuers separately file Form 1099-SB. Both forms report the same transaction from different perspectives, ensuring comprehensive documentation.
Check Transaction Timing
Confirm the acquisition occurred between January 1, 2018, and December 31, 2018. Transactions outside this period are reportable in different tax years. The 2018 reporting cycle covers only acquisitions made in calendar year 2018.
Completing the Form
Acquirer Information
Enter your complete TIN, full legal name, street address, city, state, ZIP code, and country if outside the United States. Include a direct telephone number for questions about the return.
If your contact person differs from the one listed at the primary address, please provide separate contact information, including their name, address, and telephone number. Leave this section blank if contact information is identical to the acquirer header.
Payment Recipient Details
Enter the payment recipient’s complete TIN and full legal name. The payment recipient is the policy owner who sold the contract to you. Include their complete mailing address, including street address, city, state, ZIP code, and country (if applicable).
Remember that Copy A filed with the IRS contains the complete TIN, but Copies B and C display only the last four digits for privacy protection under 2018 rules.
Policy Number
Enter the exact policy number assigned by the insurance company issuer. This number must match the issuer’s records precisely to align with their Form 1099-SB filing under Section 6050Y(b).
Box 1: Amount Paid
Report the gross amount paid to the payment recipient in the reportable policy sale. This represents the acquisition payment before any basis calculations or gain computations by the recipient.
Reporting this amount to the issuer is optional on Copy C, though all other information must be provided.
Box 2: Date of Sale
Record the exact date the acquisition occurred in 2018. This date must match the date reported on the corresponding Form 1099-SB filed by the issuer to ensure proper transaction matching.
Issuer Information
Enter the insurance company name bearing the risk on the contract as of the sale date. This is typically the company administering the contract and responsible for paying death benefits.
Filing Copy A with the IRS
Use only the official IRS-printed scannable Copy A. The 2018 instructions explicitly prohibit printing Copy A from the IRS website. Penalties may be imposed for filing non-scannable versions that cannot be processed by optical character recognition equipment.
The IRS does not provide a fill-in form option for Copy A in 2018. Filers must obtain official pre-printed forms or file electronically using the FIRE system with Publication 1220 specifications.
Attach Copy A to Form 1096, Annual Summary and Transmittal of U.S. Information Returns. File by February 28, 2019, if filing on paper, or April 1, 2019, if filing electronically. Electronic filing is required for 250 or more returns of any single type.
Furnishing Copy B to Payment Recipient
Provide Copy B to the payment recipient by January 31, 2019. This deadline applies regardless of whether you file Copy A on paper or electronically.
Copy B must display only the last four digits of the payment recipient’s TIN for privacy protection while containing all other transaction information, including the full amount paid, date of sale, policy number, and issuer information.
You may furnish Copy B electronically if the recipient has affirmatively consented to electronic delivery following the requirements in the General Instructions for Certain Information Returns.
The payment recipient uses Copy B to determine their taxable gain or loss based on their adjusted basis in the contract. Failure to furnish Copy B promptly results in penalties for failure to furnish correct payee statements.
Furnishing Copy C to Issuer
Provide Copy C to the issuer by January 31, 2019. The issuer needs this information to prepare their Form 1099-SB reporting the same reportable policy sale under Section 6050Y(b).
Copy C displays only the last four digits of the payment recipient’s TIN for privacy protection, similar to Copy B. Include all other information necessary for the issuer to identify the policy and transaction.
The requirement to furnish Copy C applies when you acquired a life insurance contract or interest from a payment recipient in a reportable policy sale.
Corrected Returns
If you discover an error on a previously filed 2018 Form 1099-LS, file a corrected return. Check the CORRECTED box on all copies being filed or furnished.
File corrected Copy A with the IRS attached to Form 1096 marked for corrected returns. Furnish corrected Copies B and C to the payment recipient and issuer with the CORRECTED box checked.
The 2018 instructions require corrected forms to be identified separately from original submissions to ensure proper processing.
Extension Requests
Request an automatic 30-day extension by submitting Form 8809 by the original due date. The extension applies only to filing Copy A with the IRS, not to furnishing Copies B and C to recipients and issuers.
The January 31, 2019, deadline for furnishing statements remains firm unless you demonstrate undue hardship. Form 8809 may be submitted on paper or electronically through the FIRE system.
Under certain hardship conditions, you may apply for an additional 30-day extension beyond the initial automatic extension.
Key 2018 Requirements
First Full Year Implementation
The 2018 tax year is the first complete calendar year under Section 6050Y. While the law became effective August 7, 2017, the 2018 reporting season provides a full year for compliance. No reporting obligation exists for transactions before the August 7, 2017, effective date.
TIN Truncation for Privacy
Display only the last four digits of the payment recipient’s TIN on Copies B and C. This 2018 privacy safeguard protects sensitive information while maintaining sufficient identification.
Report the complete TIN to the IRS on Copy A. The acquirer’s TIN may never be truncated on any version.
Scannable Copy A Requirement
Copy A must be the official red-ink scannable version for IRS optical character recognition processing. The 2018 instructions contain explicit penalty warnings that filing a non-scannable Copy A printed from the website may result in penalties.
Copies B, C, and D are available as fillable online PDFs for completing on screen and printing for furnishing to recipients or retaining in your files.
Dual Reporting Coordination
Both Form 1099-LS filed by the acquirer and Form 1099-SB filed by the issuer report the same transaction from different perspectives. Ensure critical information such as policy number, date of sale, payment recipient identification, and issuer name is accurate and consistent.
Discrepancies between the acquirer’s and issuer’s forms can trigger IRS inquiries or confusion for the payment recipient reporting the transaction on their tax return.
Record Retention
Retain Copy D for your records for at least four years from the due date or the date filed, whichever is later. Maintain copies of all Forms 1099-LS filed along with supporting documentation to substantiate compliance with information reporting requirements and provide backup if the IRS requests verification.
Form 1099-LS represents a significant addition to information reporting for life insurance transactions. Proper completion and timely filing ensure compliance, providing payment recipients and issuers with the necessary information to fulfill their tax obligations for reportable policy sales in 2018.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
