IRS Addresses Secondary Market For Life Insurance

The secondary market for life insurance has been growing rapidly, and of course the government wants its piece of the new industry. The IRS recently issued a couple rulings in an effort to clarify the tax treatment of these transactions. The law firm Morrison & Foerster LLP helps explain these new rulings in their article below from JD Supra.

Over the years, a substantial secondary market in life insurance contracts has developed, giving individuals owning these contracts what may be an important source of income, and allowing investors to gain exposure to a new asset class. Investors may purchase policies directly or through an investment vehicle such as a limited partnership. The Internal Revenue Service (“IRS”) has now issued two published rulings that will help clarify the tax treatment of transactions in this market. The rulings clarify the tax treatment of both the original owner of the contract and the investor in the secondary market. The rulings do not address the special rules applying to viatical settlements in which a policy is sold by certain terminally ill or chronically ill individuals.

Morrison & Foerster LLP: IRS Addresses Secondary Market For Life Insurance