What is the main purpose that IRC section 1035 was enacted?
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I.R.C. § 1035(a) General Rules — Show No gain or loss shall be recognized on the exchange of— I.R.C. § 1035(a)(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; I.R.C. § 1035(a)(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; I.R.C. § 1035(a)(3) — an annuity contract for an annuity contract or for a qualified long-term care insurance contract; or I.R.C. § 1035(a)(4) — a qualified long-term care insurance contract for a qualified long-term care insurance contract. I.R.C. § 1035(b) Definitions — For the purpose of this section— I.R.C. § 1035(b)(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. I.R.C. § 1035(b)(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. I.R.C. § 1035(b)(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. I.R.C. § 1035(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. I.R.C. § 1035(d) Cross References I.R.C. § 1035(d)(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. I.R.C. § 1035(d)(2) — For rules relating to the basis of property acquired in an exchange described in subsection (a), see subsection (d) of section 1031. (Aug. 16, 1954, ch. 736, 68A Stat. 309; July 18, 1984, Pub. L. 98-369, div. A, title II, 211(b)(15), 224(a), 98 Stat. 756, 776; Oct. 22, 1986, Pub. L. 99-514, title XVIII, 1828, 100 Stat. 2851; Pub. L. 105-34, title XI, Sec. 1131(b)(1), Aug. 5, 1997, 111 Stat 788; Pub. L. 109-280, title VIII, Sec. 844(b), Aug. 17, 2006, 120 Stat. 780; Pub. L. 115-141, Div. U, title IV, Sec. 401(a)(168), Mar. 23, 2018, 132 Stat. 348.) 2018--Subsec. (a)(1). Pub. L. 115-141, Div. U, Sec. 401(a)(168), amended par. (1) by substituting a semicolon for “; or”. 2006--Subsec. (a)(1). Pub. L. 109-280, Sec. 844(b)(3)(A), amended par. (1) by inserting “or for a qualified long-term care insurance contract” before the semicolon at the end. Subsec. (a)(2). Pub. L. 109-280, Sec. 844(b)(3)(B), amended par. (2) by inserting “, or (C) for a qualified long-term care insurance contract” before the semicolon at the end. Subsec. (a)(3). Pub. L. 109-280, Sec. 844(b)(3)(C), amended par. (3) by inserting “or for a qualified long-term care insurance contract” before the period at the end. Subsec. (a)(2)-(4). Pub. L. 109-280, Sec. 844(b)(4), amended subsec. (a) by striking “or” at the end of par. (2), by substituting “; or” for the period at the end of par. (3), and by adding par. (4). Subsec. (b)(2). Pub. L. 109-280, Sec. 844(b)(1), amended par. (2) by adding the sentence at the end. Subsec. (b)(3). Pub. L. 109-280, Sec. 844(b)(2), amended par. (3) by adding the sentence at the end. 1997--Subsecs. (c), and (d). Pub. L. 105-34, Sec. 1131(b)(1) redesignated subsec. (c) as subsec. (d), and inserted new subsec. (c) after subsec. (b). 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, 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, 211(b)(15), which substituted “as defined in section 816” for “as defined in section 801”. Pub. L. 98-369, 211(b)(15), substituted “section 816” for “section 801”. EFFECTIVE DATE OF 2018 AMENDMENTS Amendment by Pub. L. 115-141, Div. U, Sec. 401(a)(168), effective March 23, 2018. EFFECTIVE DATE OF 2006 AMENDMENTS Amendments by Section 844(b) of Pub. L. 109-280 effective for exchanges occurring after December 31, 2009. EFFECTIVE DATE OF 1997 AMENDMENTS Amendment by Section 1131 of Pub. L. 105-34 effective on the date of the enactment of such Act [enacted: Aug. 5, 1997]. EFFECTIVE DATE OF 1986 AMENDMENTS 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 AMENDMENTS 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].” What is a 1035 exchange used for?A 1035 exchange is a provision in the tax code which allows you, as a policyholder, to transfer funds from a life insurance, endowment or annuity to a new policy, without having to pay taxes.
What is a Section 1035?This part of the U.S. tax code allows you to exchange an existing variable annuity contract for a new annuity contract without paying tax on the income and investment gains in your current account. But you may have to pay surrender charges on your old annuity if you are still within the surrender period.
How is a 1035 exchange reported?Will I receive a tax form for a 1035 exchange? You will receive a 1099-R to report a 1035 exchange to another insurance company. However, a 1035 exchange is not a taxable event. All 1035 exchanges are reportable and the distribution code of '6' on the tax form indicates to the IRS it was a tax-free 1035 exchange.
Which of the following is not allowed in a 1035 exchange?Which of the following is not an allowable 1035 exchange? Because these are irreversible income contracts, Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs), and Qualified Longevity Annuity Contracts (QLACs) are not permitted.
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