§6050Y Returns Relating to Certain Life Insurance Contract Transactions

Summary

If you buy a life insurance policy from someone else in what's called a reportable policy sale, you must report it to the IRS. The report lists your name, address, and taxpayer ID, the same details for everyone you paid, the date of the sale, the insurance company and policy number, and how much each person was paid. You also send a written statement to each person named in the report. The insurance company that issued the policy then files its own report showing the seller's name and how much the seller had invested in the contract. Later, whoever pays out the death benefit on a policy that was sold this way reports the payment, the recipients, and an estimate of the buyer's investment in the contract, and gives each recipient a statement. These rules let the IRS track the taxes owed when life insurance policies change hands.