IRS Advises Predatory Micro-Captive Insurance Participants To Leave Arrangements

The IRS Continues Its Efforts To Root Out Tax Evasion & Fraud

The IRS is continuing its crackdown on micro-captive insurance arrangements, and last week, it issued a new plea to participants in these schemes to leave them. The IRS is increasing its efforts to put an end to these arrangements, which are commonly used to evade tax obligations.

Recently, the agency prevailed in another case in U.S. Tax Court against these arrangements. In March, the U.S. Tax Court ruled in Caylor Land & Dev. V. Commissioner, T.C. that the micro-captive arrangement created by the plaintiff did not qualify as actual insurance for the purposes of federal tax regulations. The court also ruled that the penalties leveraged by the IRS were suitable. It was one of several recent rulings against these types of arrangements.

Last year, the IRS introduced 12 micro-captive examination teams whose job it is to scrutinize these arrangements to determine if they are, indeed, doing the job they declare to do, or if they are just off-shore shelters to help people avoid their tax obligations. When these arrangements are found to be fraudulent, not only does the IRS disallow the deductions associated with them, but it also imposes severe penalties.

Taxpayers Involved In Micro-Captive Insurance Arrangements Must Consult a Tax Advisor

“In multiple cases before the courts, judges have held that these ‘fanciful’ and ‘unreasonable’ arrangements don’t add up to insurance in the commonly accepted sense,” IRS Commissioner Chuck Rettig said in a press release. “I strongly urge participants in these arrangements to get independent legal advice separate from those who helped steer them into these abusive arrangements.”

In Notice 2016-66, the IRS established reporting requirements for those involved in micro-captive insurance transactions on or after Nov. 2, 2006. The notice advised on disclosure obligations for material advisors.

Now the IRS is encouraging those involved in these transactions to consult with a tax advisor before filing their 2020 tax returns. In March and July of last year, the agency sent letters to taxpayers who were involved in such transactions giving them the opportunity to leave these transactions before an official examination of the arrangement was initiated. A large number of people involved in these transactions did leave them.
 

Contact Our Experienced Tax Attorneys In Las Vegas, NV

 
The IRS will continue its efforts to root out tax evasion and fraud to ensure that all taxpayers are meeting their obligations. If you are involved in a micro-captive insurance transaction or other arrangement that you think or know to be questionable, you need to contact a tax attorney as soon as possible to get advice. The tax attorneys at Silver Law PLC are ready to help. Our experienced team represents clients in both civil and criminal tax litigation, audits, and more. We represent clients dealing with foreign tax reporting requirements, including those involved in micro-captive insurance transactions. We can help you understand your legal obligations and options. Our goal is to help you reduce your tax liability and penalty. Call us today to schedule a consultation with a Las Vegas tax lawyer and learn more.

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