August 7, 2026
2:59 pm

Life Settlements for Montana CPAs and Tax Professionals: A 2026 Practice Guide

Montana is one of the few states whose settlement statute names accountants directly, and it names them in a prohibition. Under the Montana Viatical Settlement Act at MCA 33-20-1313, a licensee may not pay or offer to pay a finder’s fee, commission, or other compensation to a physician, attorney, accountant, or other person providing medical, legal, or financial planning services to the policyholder or insured, in connection with a policy insuring an individual with a terminal illness or condition. If a broker has offered you a piece of the deal for sending a client, Montana law has already answered the question.

That is the compliance headline. The technical headline is that the basis rule changed in 2017 and a good deal of practice software and internal worksheets still run the pre-2018 arithmetic, which overstates a client’s gain, sometimes badly. Between those two points sits the ordinary work: splitting one transaction into three character buckets, reconciling two information returns that arrive from two different parties, and telling the client honestly when the answer is to keep the policy.

This guide is for the practitioner — the CPA, EA, or tax attorney in Billings, Missoula, Great Falls, or a two-person shop covering four counties — whose client is weighing a sale, has already closed one, or is trying to pay for care in a state where the nearest skilled nursing facility may be ninety miles away.

In This Article

The compensation prohibition, and why it protects you
Montana’s regulator is the elected State Auditor
Basis after the TCJA repeal
Three tiers, and Montana’s treatment of the gain
The information returns, and the transfer-for-value rules
Medicaid, the Big Sky Waiver, and frontier care economics
Frequently Asked Questions

Life Settlements for Montana CPAs and Tax Professionals: A 2026 Practice Guide

The compensation prohibition, and why it protects you

Montana’s Viatical Settlement Act is codified at Title 33, chapter 20, part 13 of the Montana Code Annotated. Section 33-20-1301 is the short title, section 33-20-1308 governs the terms of the contract, and section 33-20-1313 sets out the conduct requirements. That last section does four things worth knowing.

It prohibits a licensee from paying a finder’s fee, commission, or other compensation to physicians, attorneys, accountants, or other persons providing medical, legal, or financial planning services to the policyholder or insured, in connection with policies insuring individuals with a terminal illness or condition. It prohibits discrimination in entering settlement contracts on the basis of race, age, sex, national origin, creed, religion, occupation, marital or family status, or sexual orientation. It prohibits false or misleading advertising and solicitation. And it prohibits a licensee from selling another insurance product to the contract holder without approval from the commissioner — a provision aimed squarely at the practice of turning settlement proceeds into an annuity sale.

Read that first prohibition as a protection rather than a restriction. It removes the awkward conversation entirely: you cannot be paid by the other side, so you do not have to negotiate over whether you should be. Your independence is preserved by statute. Montana also has a separate fraud provision, MCA 33-1-1304, addressing viatical settlement fraud, which is the hook for a referral to the regulator if something in a transaction looks manufactured.

Statutes are amended and renumbered. If you are citing part 13 in an engagement letter or written advice, pull the current text from the Montana Code Annotated or confirm it with the Commissioner’s office rather than relying on a compliance chart. Our client-facing page on life settlement licensing in Montana covers the same territory in plainer language.

Montana’s regulator is the elected State Auditor

This trips up practitioners who move to Montana from other states. Insurance in Montana is regulated by the Commissioner of Securities and Insurance, and that office is held by the Montana State Auditor, a separately elected statewide constitutional officer. There is no standalone department of insurance with a governor-appointed commissioner. The same office regulates securities, which matters here because settlement interests sold to investors have a securities dimension in many states, and Montana has both authorities under one roof.

For your workflow, the office is where you verify that a viatical settlement provider or broker holds a Montana license before your client signs a medical authorization or a purchase agreement. The Commissioner’s office publishes license applications and instructions for viatical settlement brokers, so a legitimate counterparty will have a file there. A counterparty that cannot produce a Montana license number is not a counterparty.

It is also the office to which a client complaint goes, and the office that approves the settlement contract forms and disclosure statements a provider is permitted to use. If a client shows you an agreement with no accompanying disclosure statement, that absence is a signal worth acting on. The general warning signs are collected on our page on life settlement scams and red flags, and the consumer complaint route is described on our page on Montana insurance department consumer help.

Basis after the TCJA repeal

Revenue Ruling 2009-13 required a seller’s basis in a life insurance contract to be reduced by cumulative cost-of-insurance charges. That reduction inflated gain, and it created a mismatch: the companion ruling for surrenders required no such reduction, so selling produced more taxable income than surrendering the same contract.

Section 13521 of the Tax Cuts and Jobs Act amended IRC section 1016(a)(1)(B) to eliminate the reduction, retroactively for transactions entered into after August 25, 2009. Adjusted basis is now cumulative premiums paid, reduced by cash dividends received, partial surrenders, and untaxed distributions, and not reduced by mortality or cost-of-insurance charges.

The practical work is documentary. Request a full premium history and the carrier’s stated investment in the contract, in writing, before you compute anything. Where the contract came through a section 1035 exchange, basis carries over from the surrendered policy and the new carrier’s records typically begin at the exchange date — you have to bridge that gap with the prior carrier’s records or the client’s own files. In agricultural Montana practices there is a further recurring wrinkle: policies purchased decades ago as part of a ranch succession plan, where premiums were paid by an entity and the policy is owned by an individual, or the reverse. Basis follows the owner. Sort out ownership and payer before you build a schedule.

Gross up for policy loans. Where a loan is repaid out of closing proceeds, the amount realized is the gross settlement price. A $400,000 sale with a $95,000 loan payoff produces a $400,000 amount realized and a $305,000 wire, and the 1099-LS will report the gross figure.

Item	Montana position
Governing statute	MCA Title 33, ch. 20, part 13 — Viatical Settlement Act
Short title / contract terms / conduct	33-20-1301, 33-20-1308, 33-20-1313
Fraud provision	MCA 33-1-1304, viatical settlement fraud
Can a CPA take a referral fee?	No — 33-20-1313 bars paying accountants a finder’s fee in these transactions
Regulator	Commissioner of Securities and Insurance, Office of the Montana State Auditor
State estate / inheritance tax	Neither
Top individual income rate	5.9%, with preferential rates for net long-term capital gains
Medicaid LTSS	DPHHS Senior and Long Term Care Division; Big Sky Waiver for HCBS

Three tiers, and Montana’s treatment of the gain

The federal split is fixed in order. First, proceeds up to adjusted basis come back as a nontaxable return of capital. Second, the excess of the policy’s cash surrender value over adjusted basis is ordinary income — the inside build-up the client would have recognized on a surrender. Third, everything above the cash surrender value is capital gain, long-term where the contract was held more than a year, reported on Form 8949 and carried to Schedule D.

A worked case: a Bozeman client paid $175,000 of premiums into a universal life contract, the cash surrender value at closing is $205,000, and the settlement pays $465,000. Basis recovery is $175,000; ordinary income is $30,000; long-term capital gain is $260,000. The surrender alternative would have produced $205,000 gross and the same $30,000 of ordinary income, with none of the $260,000.

On the Montana return, the state’s individual income tax reaches a top marginal rate of 5.9% after the restructuring enacted in recent sessions, and Montana applies preferential rates to net long-term capital gains rather than taxing them at the full ordinary rate. That preference, if it applies to your client’s year, reduces the state cost of the largest tier of the transaction. Confirm the current-year brackets and the mechanics with the Montana Department of Revenue before relying on the figures, because Montana’s rate structure has been amended repeatedly and a general-summary rate from two years ago is a liability.

Montana imposes no estate tax and no inheritance tax. At the federal level the exclusion was set at $15 million per decedent for 2026 under the 2025 federal legislation and is indexed thereafter. Together those facts remove the state-death-tax-liquidity argument for keeping a policy in force, which is one of the most common reasons a family hesitates. Compare the client-facing treatment on our page on life settlement taxes in Montana.

The information returns, and the transfer-for-value rules

IRC section 6050Y, added by TCJA section 13520 and implemented by final regulations at T.D. 9879, applies to reportable policy sales after December 31, 2018. Form 1099-LS, Reportable Life Insurance Sale, is filed by the acquirer and furnished to the seller and the issuing carrier, reporting gross amount paid. Form 1099-SB, Seller’s Investment in Life Insurance Contract, is filed by the issuing insurance company and reports the seller’s investment in the contract and the policy’s surrender amount.

The 1099-SB is the one that supplies tiers one and two, and it is the one clients misplace. Request a duplicate rather than estimating, and reconcile the carrier’s investment-in-contract figure against your own reconstruction. The two will diverge after a 1035 exchange or a block acquisition, and the difference is the thing a matching notice will ask about.

Transfer for value: IRC section 101(a)(2) makes the death benefit taxable to a transferee who acquired the policy for consideration, above consideration plus subsequent premiums. TCJA section 13522 added section 101(a)(3), which turns off the usual exceptions — carryover basis and transfers to the insured, a partner of the insured, a partnership in which the insured is a partner, or a corporation in which the insured is a shareholder or officer — for a reportable policy sale. That is the institutional buyer’s problem. The client’s problem is the parallel family transaction: an adult child buying the policy, a ranch buy-sell being unwound, a policy moved into an LLC for consideration. Those are live section 101(a)(2) exposures and they belong in a memo, not a hallway conversation.

In the other direction, IRC section 101(g) excludes amounts received on a sale to a licensed viatical settlement provider where a physician certifies the insured is reasonably expected to die within 24 months, and provides a narrower per diem-limited exclusion for chronically ill insureds under section 7702B(c)(2). Verify the provider’s Montana license, because the exclusion depends on it. Our page on selling a policy after a terminal diagnosis covers the client side.

Medicaid, the Big Sky Waiver, and frontier care economics

Montana Medicaid is administered by the Department of Public Health and Human Services, with long-term services and supports run through the Senior and Long Term Care Division. Home and community-based services for older adults and people with physical disabilities flow through Montana’s Big Sky Waiver. Medicaid expansion in Montana carried a legislative sunset and was addressed again in the 2025 session; confirm current status with DPHHS, and note that expansion status does not govern the aged, blind, and disabled or institutional pathways, which is where these clients actually apply.

The resource rules are the operative ones. Under 20 C.F.R. section 416.1230, the cash surrender value of life insurance is a countable resource unless the total face value of all policies on that insured is $1,500 or less, in which case the cash value is excluded outright. Term insurance with no cash value is not a resource at all. Selling a policy at fair market value is not an uncompensated transfer and does not create a penalty under the 60-month look-back, but the cash proceeds become a countable resource in the month after receipt. That distinction — no transfer penalty, but a resource problem — is where families most often go wrong, and it is set out on our page on the Medicaid look-back and selling a policy.

Montana’s care economics are shaped by geography. Recent published cost-of-care surveys put the median semi-private nursing facility rate in Montana in the range of roughly $9,000 to $10,500 per month, lower than coastal states but high relative to Montana incomes, and a number of Montana counties have no skilled nursing facility at all. That means placement frequently involves relocating a parent hours from family, and it means the informal-caregiving option that quietly subsidizes care elsewhere is often unavailable. When a family is pricing that decision, an in-force policy with a large face amount and a small cash value is worth understanding before it is surrendered or allowed to lapse.

For your file, request the policy cover page with form number, issue date, face amount and owner; the most recent in-force illustration; the full premium history; and the current loan balance. Pine Lake Life Solutions provides education and a free policy review and does not purchase policies. We do not provide legal, tax, or investment advice — that remains your engagement. If an independent read on whether a client’s contract would draw market interest would help before you build a projection, the review is free at (305) 209-7183.

Frequently Asked Questions

A broker offered our firm a referral fee for introducing clients. Can we accept it in Montana?

No. MCA 33-20-1313 prohibits a licensee from paying a finder’s fee, commission, or other compensation to accountants, attorneys, physicians, or others providing financial planning services in connection with policies insuring terminally ill individuals. Independent of the statute, the AICPA Code of Professional Conduct requires disclosure of referral fees and bars commissions with respect to attest clients. Decline and bill your normal fee.

Which Montana agency regulates these transactions?

The Commissioner of Securities and Insurance, an office held by the separately elected Montana State Auditor. Montana has no separate department of insurance with an appointed commissioner, which surprises practitioners from other states. That office licenses viatical settlement providers and brokers, approves contract forms and disclosure statements, and takes consumer complaints.

Does Montana give the capital gain tier a lower rate than the ordinary income tier?

Montana applies preferential rates to net long-term capital gains rather than taxing them at the full ordinary rate, which is favorable because the gain tier is usually the largest slice of a settlement. Montana’s rate structure has been amended repeatedly in recent sessions, so confirm the current-year brackets and the qualifying rules with the Montana Department of Revenue before relying on any published figure.

Does selling a policy create a Medicaid transfer penalty in Montana?

A sale at fair market value is not an uncompensated transfer, so it does not create a penalty under the 60-month look-back. The problem is the proceeds: cash becomes a countable resource in the month after receipt and can defeat eligibility if there is no spend-down plan. Coordinate the closing date with the application timeline rather than treating them as separate projects.

What is the basis rule I should be applying now?

Adjusted basis is cumulative premiums paid, less cash dividends received, partial surrenders, and untaxed distributions. It is not reduced by cost-of-insurance or mortality charges. That reduction, required under Revenue Ruling 2009-13, was repealed by TCJA section 13521 retroactive to transactions entered into after August 25, 2009. Software modules built before 2018 may still apply the old rule.

How do I handle a client who lost the Form 1099-SB?

Request a duplicate from the issuing carrier’s policy service department. The 1099-SB reports the seller’s investment in the contract and the policy surrender amount, which are the two inputs for the basis and ordinary income tiers. Estimating those figures is not defensible. Also reconcile the carrier’s number against your own premium reconstruction, since carrier records often miss pre-exchange premiums.

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