What IRS Form 1099-LS (2025) Is For
Form 1099-LS, officially known as “Reportable Life Insurance Sale,” is issued by the acquirer who purchases an interest in a life insurance contract when no substantial family or business relationship exists with the insured person. This IRS form is designed to help the Internal Revenue Service track and verify reportable policy sales, ensuring that taxable transactions involving life insurance policies are adequately disclosed.
When You’d Use IRS Form 1099-LS (2025)
This form is required when a life insurance policy is sold or transferred in certain taxable circumstances.
- Purchase of a policy in a reportable policy sale: File Form 1099-LS if you acquire an interest in a life insurance contract from someone with whom you have no substantial family or financial relationship.
- Direct or indirect acquisition: File the form, whether the acquisition occurs directly or through another entity, broker, or intermediary.
- Partial ownership transfer: You must still file the form even if you purchase only a portion of the life insurance contract rather than the entire policy.
- Life settlement transactions: Companies or individuals that buy life insurance settlements or viatical settlements are obligated to file this form to report the transaction.
- Foreign person or third-party involvement: When a foreign person or third-party information contractor participates in the reportable policy sale, you must comply with additional filing and disclosure requirements.
If you owe taxes on a life insurance sale and need time to pay, IRS payment plans for tax balances can help you spread out your payments.
Key Rules or Details for Tax Year 2025
- Electronic filing requirement: If you file 10 or more information returns of any type, you must file electronically through the IRS website using the Information Returns Intake System (IRIS).
- Filing due date: Submit Copy A of the form to the IRS by March 31, 2026, if filing electronically, or February 28, 2026, if filing on paper; furnish payment recipient copies by January 31, 2026.
- Separate forms for each recipient: An individual form must be filed for every payment recipient who received $600 or more in a reportable policy sale during the calendar year.
- Taxpayer Identification Numbers: You must collect and verify each payment recipient’s TIN or Employer Identification Number to prevent penalties and ensure accuracy.
- Unified reporting provisions: When multiple acquirers participate in a single sale, they may assign one filer or a third party to report under unified reporting provisions.
- Exceptions: Certain life insurance contract exchanges under Section 1035 or policy-for-policy transfers are exempt from reporting requirements.
Be sure to resolve unfiled individual returns so your life insurance settlement proceeds are reported accurately on your federal tax return.
Step-by-Step (High Level)
Filing IRS Form 1099-LS (2025) correctly requires attention to each reporting step in the tax filing process.
- Gather essential details: Collect the insured’s name, address, social security number, policy number, and life insurance carrier information before filing.
- Complete filer details: Enter your acquirer’s information, including name, address, telephone number, and acquirer’s TIN, as the filer responsible for reporting.
- Enter payment recipient information: Record each payment recipient’s TIN, mailing address, and the total settlement amount paid in connection with the life insurance sale.
- Add policy details: Provide the policy number, date of sale, life insurance carrier name, and other required identifying information.
- Report payments correctly: Ensure the payment amount listed reflects only the payment recipient’s share of the transaction, not the total sale price.
- File and distribute copies: File Copy A with the IRS; furnish Copy B to the payment recipient; and provide Copy C to the insurance company’s administrative office for confirmation of ownership transfer.
If you’d like a tax professional to handle IRS correspondence or filings for you, consider establishing a Power of Attorney for IRS representation.
Common Mistakes and How to Avoid Them
Avoiding errors when filing IRS Form 1099-LS (2025) is crucial to prevent penalties, delays, or compliance issues with the Internal Revenue Service.
- Failing to file when required: Always file the form whenever a reportable policy sale occurs, even if you believe the transaction is not taxable; the IRS determines taxability separately.
- Incorrect or missing TINs: Providing a wrong or missing taxpayer identification number can result in penalties and backup withholding; verify each payment recipient’s TIN through the IRS TIN Matching system before filing.
- Omitting the issuer’s copy: When the seller is the payment recipient, you must send Copy C to the life insurance carrier’s administrative office to update policy ownership records.
- Reporting incorrect amounts: Ensure Box 1 shows only the payment recipient’s share of the life settlement proceeds, not the total purchase price of the life insurance contract.
- Ignoring rescissions: If a sale is rescinded, file a corrected form within 15 calendar days of notice to meet the IRS’s rescission deadline.
- Confusing related forms: Do not mistake Form 1099-LS for Form 1099-SB, which reports the seller’s investment, cost basis, and policy’s cash surrender value rather than the purchase transaction itself.
If you incur penalties for missing, incorrect, or late IRS Form 1099-LS filings, you may qualify for IRS penalty abatement for filing mistakes to help reduce those fines.
What Happens After You File Form 1099-LS (2025)
Once IRS Form 1099-LS (2025) is submitted, the Internal Revenue Service reviews the filing and matches it against the income tax return of each payment recipient. The IRS uses this data to confirm that reported life settlement proceeds align with declared taxable income or capital gains. The seller may owe taxes on any gain exceeding the premiums paid, which could be treated as ordinary income or a long-term capital gain, depending on the circumstances.
Understanding the IRS collection process can help you address any compliance notices or audit requests related to life insurance settlements.
FAQs
Do I need to file IRS Form 1099-LS if I sell my life insurance policy?
No, the obligation to file belongs to the acquirer or buyer. As the seller, you will receive a payment recipient copy of the form to include when preparing your income tax return and determining any taxable income from the life insurance sale.
What’s the difference between Form 1099-LS and Form 1099-SB?
Form 1099-LS reports details of a reportable life insurance sale, while the life insurance carrier files Form 1099-SB to disclose the seller’s investment and cost basis in the contract. Together, both forms help the IRS assess capital gains and other tax implications.
Are life settlement proceeds taxable?
Yes, any profit exceeding the premiums paid may be considered ordinary income or a long-term capital gain, depending on the policy type and the seller’s cost basis in the life insurance contract.
Can I e-file Form 1099-LS?
Yes, you can e-file through the IRS website using the IRS system, even if you have fewer than ten forms to submit. Electronic filing is faster and ensures proper submission of reportable policy sale payments.
What happens if I file late?
The IRS may impose penalties that increase over time. Filing promptly and keeping accurate payment recipient information helps you avoid fines and delays in confirming the life settlement transaction.
