February 3 2020

IRS announces next step on abusive micro-captive insurance transactions

Source: IBFD Tax Research Platform News

The US Internal Revenue Service (IRS) has announced the overwhelming acceptance of a time-limited settlement offer made to certain taxpayers under audit who participated in abusive micro-captive insurance transactions. The IRS has also announced the establishment of 12 new examination teams that are expected to open audits related to thousands of taxpayers in coming months.

The announcement was made in an IRS News Release (IR-2020-26) dated 31 January 2020.

The IRS states that almost 80% of taxpayers who received settlement offer letters elected to accept the settlement terms, which required substantial concession of the income tax benefits claimed by the taxpayer, together with appropriate penalties.

In addition, the IRS is establishing 12 new examination teams that will tackle abusive micro-captive insurance transactions and other similar abusive transactions. Potential civil outcomes can include full disallowance of claimed captive insurance deductions, inclusion of income by the captive entity, and imposition of all applicable penalties.

The IRS reminds taxpayers and advisors that disclosure of participation in micro-captive insurance transactions is required with the IRS Office of Tax Shelter Analysis under IRS Notice 2016-66