Life insurance proceeds received on the death of a U.S. life insured are generally not taxable to beneficiaries under the U.S. Internal Revenue Code. Thus, similar to the situation in Canada, life insurance provides a tax-effective way to provide liquidity on the death of a U.S. person.

But not all life insurance proceeds are treated the same way for U.S. tax purposes. If a life insurance contract is sold or transferred as part of a life settlement transaction, a portion of the amount paid by reason of the death of the insured may be taxable. These rules will also generally apply to Canadians who acquire life insurance covering the lives of U.S. persons. Marsha Laine Dungog of Moodys Gartner Tax Law LLP reviews the U.S. “transfer for value” rules in this latest edition of CALU Report.

Topics covered in this report include:

  • Changes Introduced in the Tax Cuts and Jobs Act of 2017
    • Acquirers subject to reporting
    • Issuers subject to reporting
    • Who is an “Issuer” subject to reporting?
    • Reporting by payors of reportable death benefits
    • Penalties, effective dates, and transition rules

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This publication has been translated into French.

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