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Understanding Life Insurance Transfer-for-Value and Reportable Policy Sales Rules

Advisors must beware of the consequences to their clients.

The so-called “transfer-for-value” rules under Internal Revenue Code Section 101 govern the tax consequences of the transfer of ownership of an interest in a life insurance policy in exchange for consideration (represented by cash or other property or a change in the rights or obligations of the parties to the transfer). In addition, the Tax Cuts and Jobs Act of 2017 (TCJA) created and defined the new “reportable policy sale” and imposes enforceable reporting requirements on a taxpayer who

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