Question

All of the following transactions qualify for IRC Section 1035 exchange tax treatment, except:

A. life insurance policy can be exchange for a long-term care policy
B. A life insurance policy may be exchanged for another life insurance policy
C. Life insurance may be exchanged for an annuity
D. Nonqualified tax deferred annuities may be exchanged for life insurance policies

Answer 1

IRC Section 1035 of the Internal Revenue Code allows for tax-free exchanges of certain types of insurance policies and annuities, providing flexibility for individuals to change their insurance coverage without triggering a taxable event.

Step-by-step explanation:

IRC Section 1035 of the Internal Revenue Code allows for tax-free exchanges of certain types of insurance policies and annuities. The purpose of this provision is to provide flexibility for individuals to change their insurance coverage without triggering a taxable event.

The exchanges that qualify for IRC Section 1035 tax treatment include exchanging a life insurance policy for a long-term care policy, exchanging a life insurance policy for another life insurance policy, and exchanging a life insurance policy for an annuity.

However, nonqualified tax-deferred annuities cannot be exchanged for life insurance policies under IRC Section 1035. Nonqualified annuities are taxed differently from life insurance policies, and the IRS does not provide the same tax treatment for exchanges between these two types of financial products.