Form 1099-SB and 1099-LS

[taxmandan]

These are new to me, looks like client sold his life insurance policy to a company which issued these forms to him. I can't find anything on irs site about them and where or if anything is reported on the 1040. Anyone dealt with these forms? TIA

[Gene V]

Never received one myself--These website should help you

https://www.irs.gov/forms-pubs/about-form-1099-sb


https://www.irs.gov/forms-pubs/about-form-1099-ls

[taxmandan]

Those only reference how the issuer is to complete the forms and when, nothing about what the recipient is to do with it re their tax return.

[Burke]

On the first form, 1099-SB, it looks as if it is issued when there is a determinable investment in the contract. This would make the difference taxable (i.e, if surrender amount is more than the policyholder's investment). On the second form 1099-LS, it is just a statement of proceeds with no investment information on it. I don't know why there would be two forms, unless they could not determine what investment was in the contract for the second one. However, Form 1099-R which reports income to the extent proceeds exceed investment in the event of a cash surrender of such a contract are treated as ordinary income. And generally on Line 21, Other Income. Were these forms intended to replace 1099-R? In any event, they appear to be Copy A forms only, and are required by the companies who issue these contracts in reporting certain information to the IRS. Did he get 2 forms for 2 different contracts? (The policy number should be on them.) Did the TP also receive Forms 1099R related to these for reporting on his tax return? This is the first time I have seen these. And I have never had a client who received them as this is a new requirement. What is the date of sale on them? They are issued by the insurance company who held the contract. I would have the TP contact them and/or his agent for information. In my past experience, if no 1099R was issued, there was no gain. Also, information as to whether there is any gain is generally on the check stub when it is issued by the insurance company.

[taxmandan]

Thanks Burke, you're understanding of the forms is mine as well. He did not get a 1099R, the 1099SB shows investment of ~$41,500 and proceeds to him of $26,000 so I'm thinking there is no taxable gain here. The forms are from two different companies, and the activity was in March 2019. I don't think there is any taxable result so will file it away as information only. New client and very elderly so he doesn't have a clue as to what all happened with this except that he got some money from an insurance policy. Looks like a viatical sale of a life insurance policy.

[Burke]

Yes, it appears Form 1099LS is issued by the acquiring company, and Form 1099-SB is issued by the insurance company who issued the contract showing the amount of investment calculation. So now the acquiring company owns the contract, has a basis, must pay the premiums, and will collect the death benefits when the insured dies. This is probably the same policy. The TP has incurred a loss, but it is personal and cannot be deducted.