Tax Insight

Final regulations confirm treatment of life insurance policy exchanges

Insight
5 minute read
July 20, 2026

What happened?

Treasury and the IRS published on July 9 final regulations (the 2026 final regulations) regarding reportable policy sales of life insurance contracts and payments of reportable death benefits under the 2017 Tax Cuts and Jobs Act (the Act). The 2026 final regulations adopt, with certain modifications, the proposed regulations published on May 10, 2023 (the 2023 proposed regulations), addressing the treatment of life insurance contracts received in a tax-free exchange under Section 1035, and the treatment of such contracts received in the ordinary course of business acquisitions.

Why is it relevant?

The 2026 final regulations apply to any life insurance contract acquired in a tax-free exchange under Section 1035 or an acquisition that occurs on or after July 9, 2026. However, taxpayers may choose to apply the 2026 final regulations to all exchanges and acquisitions occurring after December 31, 2017.

Actions to consider

Taxpayers who own life insurance policies (including corporate-owned life insurance (COLI) or similar policies) and engage in tax-free policy exchanges should consider whether the 2026 final regulations excuse them from existing rules related to reportable policy sales. Issuers of life insurance contracts that are involved in Section 1035 exchanges of contracts previously transferred in a reportable policy sale should review the streamlined information reporting procedures adopted in the 2026 final regulations, which differ from what was proposed in 2023.

Corporate acquirers of interests in life insurance contracts in tax-free reorganizations should analyze the treatment of those contracts under the 2026 final regulations.