IRS addresses secondary market for life insurance.
The Internal Revenue Service (IRS) has issued two published rulings that will help clarify the tax treatment of transactions in the life settlement market.
The most significant holdings of the rulings (Revenue Ruling 2009-13 and Revenue Ruling 2009-14) include the following:
* An original policyholder who sells a life insurance contract must reduce the tax basis in the contract by the cost of insurance, but an investor does not need to do this.
* Gains recognized by an original policyholder upon the surrender of a life insurance contract, and a portion of the gains recognized upon the sale of a life insurance contract, are ordinary income.
* Gains recognized by an original policyholder upon the sale of a life insurance contract are capital gains to the extent the sale price exceeds the cash surrender value of the contract.
* Gains recognized by an investor on the receipt of death benefits under a life insurance contract are ordinary income.
* An investor's basis in a life insurance contract is increased by the amount of premiums paid under the contract.
* Gains recognized by a foreign investor on the receipt of death benefits under a life insurance contract are U.S. source income if both the insured and the insurer are U.S. residents and are therefore subject to a 30 percent withholding tax unless a tax treaty provides otherwise.
|Printer friendly Cite/link Email Feedback|
|Title Annotation:||Short Takes|
|Publication:||Agent's Sales Journal|
|Date:||Jul 1, 2009|
|Previous Article:||Senate paper discusses group health coverage tax possibilities.|
|Next Article:||Objection of the month.|