IRC Section 1035
Section 1035. Certain exchanges of insurance policies
(a) General rules
No gain or loss shall be recognized on the exchange of -
(1) a contract of life insurance for another contract of life
insurance or for an endowment or annuity contract or for a
qualified long-term care insurance contract;
(2) a contract of endowment insurance (A) for another contract
of endowment insurance which provides for regular payments
beginning at a date not later than the date payments would have
begun under the contract exchanged, or (B) for an annuity
contract, or (C) for a qualified long-term care insurance contract;
(3) an annuity contract for an annuity contract or for a
qualified long-term care insurance contract; or
(4) a qualified long-term care insurance contract for a
qualified long-term care insurance contract.
(b) Definitions
For the purpose of this section -
(1) Endowment contract
A contract of endowment insurance is a contract with an
insurance company which depends in part on the life expectancy of
the insured, but which may be payable in full in a single payment
during his life.
(2) Annuity contract
An annuity contract is a contract to which paragraph (1)
applies but which may be payable during the life of the annuitant
only in installments. For purposes of the preceding sentence, a
contract shall not fail to be treated as an annuity contract
solely because a qualified long-term care insurance contract
is a part of or a rider on such contract.
(3) Life insurance contract
A contract of life insurance is a contract to which paragraph
(1) applies but which is not ordinarily payable in full during
the life of the insured. For purposes of the preceding sentence,
a contract shall not fail to be treated as a life insurance
contract solely because a qualified long-term care insurance
contract is a part of or a rider on such contract.
(c) Exchanges involving foreign persons
To the extent provided in regulations, subsection (a) shall not
apply to any exchange having the effect of transferring property to
any person other than a United States person.
(d) Cross references
(1) For rules relating to recognition of gain or loss where
an exchange is not solely in kind, see subsections (b) and (c)
of section 1031.
(2) For rules relating to the basis of property acquired in
an exchange described in subsection (a), see subsection (d) of
section 1031.
AMENDMENTS
2006 - Pension Protection Act of 2006
Section 844(b) Tax-Free Exchanges Among Certain Insurance Policies.--
(1) Annuity contracts can include qualified long-term care
insurance riders.--Paragraph (2) of section 1035(b) of such Code
is amended by adding at the end the following new sentence:
``For purposes of the preceding sentence, a contract shall not
fail to be treated as an annuity contract solely because a
qualified long-term care insurance contract is a part of or a
rider on such contract.''.
(2) Life insurance contracts can include qualified long-term
care insurance riders.--Paragraph (3) of section 1035(b) of such
Code is amended by adding at the end the following new sentence:
``For purposes of the preceding sentence, a contract shall not
fail to be treated as a life insurance contract solely because
a qualified long-term care insurance
contract is a part of or a rider on such contract.''.
(3) Expansion of tax-free exchanges of life insurance,
endowment, and annuity contracts for long-term care contracts.--
Subsection (a) of section 1035 of such <<NOTE: 26 USC
1035.>> Code (relating to certain exchanges of insurance
policies) is amended--
(A) in paragraph (1) by inserting ``or for a
qualified long-term care insurance contract'' before the
semicolon at the end,
(B) in paragraph (2) by inserting ``, or (C) for a
qualified long-term care insurance contract'' before the
semicolon at the end, and
(C) in paragraph (3) by inserting ``or for a
qualified long-term care insurance contract'' before the
period at the end.
(4) Tax-free exchanges of qualified long-term care insurance
contract.--Subsection (a) of section 1035 of such Code (relating
to certain exchanges of insurance policies) is amended by
striking ``or'' at the end of paragraph (2), by striking the
period at the end of paragraph (3) and inserting ``; or'', and
by inserting after paragraph (3) the following new paragraph:
``(4) a qualified long-term care insurance contract for a
qualified long-term care insurance contract.''.
1997 - Subsecs. (c), (d). Pub. L. 105-34 added subsec. (c) and
redesignated former subsec. (c) as (d).
1986 - Subsec. (b)(1). Pub. L. 99-514 struck out ''subject to tax
under subchapter L'' after ''with an insurance company''.
1984 - Subsec. (b)(1). Pub. L. 98-369, Sec. 224(a), which
directed the substitution of ''an insurance company subject to tax
under subchapter L'' for ''a life insurance company as defined in
section 801'', was executed by making such substitution for ''a
life insurance company as defined in section 816'' to reflect the
probable intent of Congress and the earlier amendment by Pub. L.
98-369, Sec. 211(b)(15), which substituted ''as defined in section
816'' for ''as defined in section 801''.
Pub. L. 98-369, Sec. 211(b)(15), substituted ''section 816'' for
''section 801''.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 211(b)(5) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, see section 215 of
Pub. L. 98-369, set out as an Effective Date note under section 801
of this title.
Section 224(b) of Pub. L. 98-369 provided that: ''The amendment
made by subsection (a) (amending this section) shall apply to all
exchanges whether before, on, or after the date of the enactment of
this Act (July 18, 1984).''
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title
XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to
any plan, such plan amendment shall not be required to be made
before the first plan year beginning on or after Jan. 1, 1989, see
section 1140 of Pub. L. 99-514, as amended, set out as a note under
section 401 of this title.
For a FREE initial consultation with a life insurance agent that specializes in Section 1035 exchanges, call today: (800) 680-5596
