RECENT RULINGS CLARIFY TAX ON SALE OF LIFE INSURANCE CONTRACTS

Increasingly over the last several years, owners of life insurance policies have sold their policies instead of surrendering or borrowing against their policies as a means of generating cash before their death. Because selling or surrendering a life insurance policy has become a relatively common tr...

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Bibliographic Details
Published in:Practical Tax Strategies 2009-10, Vol.83 (4), p.208
Main Authors: Gardner, Robert L, Worsham, Ronald G
Format: Article
Language:English
Subjects:
Borrowing
Capital assets
Capital gains
Cash surrender value
Cost control
Insurance companies
Insurance coverage
Insurance policies
Insurance premiums
Life insurance
Revenue procedures & rulings
Tax planning
Taxable income
Universal life
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Summary:Increasingly over the last several years, owners of life insurance policies have sold their policies instead of surrendering or borrowing against their policies as a means of generating cash before their death. Because selling or surrendering a life insurance policy has become a relatively common transaction and the underlying tax consequences are so complex, the Senate Special Committee on Aging recently requested additional guidance from the Treasury regarding the tax implications for both the insured individual who sells or surrenders the policy as well as a subsequent purchaser of the policy. In response, the IRS has recently issued two revenue rulings that deal with some of these transactions: 1. Rev. Rul. 2009- 13^sup 4^ addresses the tax issues facing insured individuals who either sell or surrender their insurance policies. 2. Rev. Rul. 2009- 14^sup 5^ addresses the tax issues involved with subsequent purchasers or investors in the policies.
ISSN:1523-6250