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Why the IRS Is Freeing Section 1035 Exchanges From a Tax Trap
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Subscribe14 JUL 2026 / IRS UPDATES
The US Treasury and IRS have resolved potential tax issues originating from 2019 regulations on Section 1035 exchanges of life insurance policies. The new 2026 regulations remove potential taxable elements of policy replacements, thereby ensuring ordinary insurance replacements don't create unexpected tax liabilities, although potential taxes resulting from policy sales continue to exist.
A life insurance policy exchange should not create a surprise tax bill years later. Yet regulations issued in 2019 created that exact risk. On July 9, 2026, Treasury and the IRS finalized regulations that restore the intended treatment of Section 1035 exc...
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