Form 1099-LS: Reportable Life Insurance Sale (2018) – A Complete Guide
What Form 1099-LS Is For
Form 1099-LS is an information return introduced in 2018 to report the sale of life insurance contracts or interests in life insurance contracts. It was created under the Tax Cuts and Jobs Act (Public Law 115-97, Section 13520) to help the IRS track what are called reportable policy sales.
In simple terms, if you’re an acquirer—someone who buys a life insurance policy from the original policyholder—you must file this form with the IRS. It captures details such as who sold the policy, the amount paid, and the issuing insurance company. This reporting applies to life settlement or viatical settlement transactions, where a life insurance policy is sold to an investor with no prior family, business, or financial relationship with the insured person.
Copies:
- Copy A: Sent to the IRS
- Copy B: Sent to the payment recipient (seller)
- Copy C: Sent to the insurance company (issuer)
When You’d Use Form 1099-LS (Filing Late or Amended Returns)
Filing Deadlines for 2018
- January 31, 2019 – Furnish statements to payment recipients and issuers
- February 28, 2019 – File paper forms with the IRS
- March 31, 2019 – File electronically with the IRS (required if filing 250+ forms)
If you missed these deadlines, file as soon as possible. The IRS assesses penalties based on how late you file.
Correcting Errors
If you discover errors, submit a corrected return by checking the “CORRECTED” box on a new Form 1099-LS. You don’t need special permission—just file the corrected version promptly.
Extensions
You can request a 30-day filing extension by submitting Form 8809 before the due date. In some cases, an additional 30-day hardship extension may be approved. Note that extensions to file with the IRS don’t extend the deadline for furnishing copies to recipients.
2018 General Instructions for Certain Information Returns
Key Rules or Details for 2018
Who Must File
Any acquirer of a life insurance contract (or an interest in one) in a reportable policy sale must file Form 1099-LS. An acquirer is any person or entity purchasing a policy where no substantial family, business, or financial relationship with the insured exists.
What Counts as a Reportable Policy Sale
A reportable policy sale includes any direct or indirect acquisition of a life insurance contract where the buyer lacks a substantial connection to the insured individual. This may also include acquiring an interest in a partnership or trust that owns a policy.
Required Information
Each Form 1099-LS must include:
- Acquirer’s name, address, telephone number, and TIN
- Payment recipient’s name, address, and TIN
- Insurance company (issuer) name
- Policy number
- Amount paid to recipient (Box 1)
- Date of sale (Box 2)
A separate form is required for each payment recipient per life insurance contract.
TIN Truncation
You may truncate the recipient’s TIN on Copy B (show only last four digits), but must report the full TIN on Copy A filed with the IRS.
2018 Instructions for Form 1099-LS
Step-by-Step (High Level)
Step 1: Gather Required Information
Collect details such as names, addresses, TINs, policy numbers, issuer information, sale amounts, and transaction dates.
Step 2: Obtain an EIN
If you haven’t filed information returns before, apply for an Employer Identification Number (EIN) using Form SS-4 or the IRS online application.
Step 3: Complete the Form
Use the official scannable IRS form. Enter:
- Acquirer details
- Payment recipient information
- Policy details and amounts (Boxes 1 and 2)
Step 4: Prepare and Distribute Copies
- Copy A: For IRS (must be official red-ink version or e-file)
- Copy B: For payment recipient
- Copy C: For issuer (insurance company)
Step 5: File with the IRS
Mail Copy A with Form 1096 (transmittal summary) to the appropriate service center, or file electronically via the FIRE (Filing Information Returns Electronically) system.
Step 6: Provide Recipient Copies
Provide Copy B to the payment recipient and Copy C to the issuer by January 31.
Common Mistakes and How to Avoid Them
Mistake #1: Using Downloaded Copy A
Printing Copy A from IRS.gov is invalid.
Solution: Order official red-ink forms or e-file electronically.
Mistake #2: Missing or Incorrect TINs
Solution: Use the IRS TIN Matching Program or obtain Form W-9 from each payment recipient.
Mistake #3: Forgetting the Issuer Copy
Solution: Always send Copy C to the insurance company.
Mistake #4: Overlooking Indirect Acquisitions
Solution: Review entity-level acquisitions—buying an interest in a partnership or trust owning a policy can trigger reporting.
Mistake #5: Missing Deadlines
Solution: Set reminders and file Form 8809 if an extension is needed.
Mistake #6: Omitting Form 1096
Paper filers must include Form 1096 as a transmittal document.
Solution: Ensure totals on Form 1096 match attached 1099-LS forms.
2018 General Instructions for Certain Information Returns
What Happens After You File
After you file, the IRS matches Form 1099-LS data with returns filed by payment recipients. The issuer (insurance company) also uses Copy C to file Form 1099-SB, which reports the seller’s investment in the life insurance contract.
If discrepancies are found (e.g., incorrect TINs or mismatched information), you may receive:
- CP2100 / CP2101 Notices – for TIN mismatches
- Penalty notices – for late or missing forms
If everything is filed correctly, you won’t hear from the IRS. Retain all documentation for at least four years.
Penalty Schedule (2018)
- $50 per form – if corrected within 30 days
- $110 per form – if corrected by August 1
- $280 per form – if corrected after August 1 or not filed at all
- Intentional disregard – no cap; minimum $570 per form
IRS Information Return Penalties
FAQs
Q1: Is Form 1099-LS required for all life insurance transactions?
No. Only reportable policy sales—transactions between unrelated parties—require this form. Standard policy surrenders or death benefit payouts do not.
Q2: Must the sale amount be reported to the issuer on Copy C?
No, Box 1 is optional on Copy C, but providing it helps the issuer meet its own Form 1099-SB filing requirements.
Q3: Can I file Form 1099-LS electronically?
Yes. Filing electronically via the FIRE system is mandatory if submitting 250 or more returns, but optional (and recommended) for smaller volumes.
Q4: What if I acquire multiple interests in one policy?
File one Form 1099-LS per payment recipient per policy. For multiple purchases from the same seller, report the total amount paid and use the date of the final transaction.
Q5: What penalties apply for late or incorrect filing?
Penalties range from $50 to $280 per form, depending on lateness. Intentional disregard has no limit and carries a minimum $570 fine.
Q6: Do I need IRS approval to file for the first time?
No approval is required, but you must have an EIN to file. Apply using Form SS-4 or the online application at IRS.gov.
Q7: What if the seller refuses to provide their TIN?
Begin backup withholding at 24% on future payments and report withheld amounts on Form 1099-LS. Keep written records of your TIN solicitation attempts.
Additional Resources
- IRS Form 1099-LS Information Page
- 2018 Instructions for Form 1099-LS (PDF)
- 2018 General Instructions for Certain Information Returns (PDF)
- IRS Information Reporting Customer Service: 866-455-7438
