October 1, 2019 - Douglas Myser

Micro captive insurance schemes. The Internal Revenue Service has announced the mailing of a time limited settlement offer for certain taxpayers under audit who participated in abusive micro captive insurance transactions. Taxpayers eligible for this offer will be notified by letter with the applicable terms. Taxpayers who do not receive such a letter are not eligible for this resolution. Abusive micro-captives have been a concern of the IRS for several years. The transactions have appeared on the IRS "Dirty Dozen" list of tax scams since 2014. In 2016, the Department of Treasury and IRS issued Notice 2016-66 (PDF), which identified certain micro-captive transactions as having the potential for tax avoidance and evasion. Micro captive insurance schemes.

Following wins in three recent U.S. Tax Court cases, the IRS has decided to offer settlements to taxpayers currently under exam. In recent days, the IRS started sending notices to up to 200 taxpayers. Tax law generally allows businesses to create "captive" insurance companies to protect against certain risks. Under section 831(b) of the Internal Revenue Code, certain small insurance companies can choose to pay tax only on their investment income. In abusive "micro-captive" structures, promoters, accountants or wealth planners persuade owners of closely held entities to participate in schemes that lack many of the attributes of genuine insurance. The IRS has consistently disallowed the tax benefits claimed by taxpayers in abusive micro-captive structures. Although some taxpayers have challenged the IRS position in court, none have been successful. To the contrary, the Tax Court has now sustained the IRS disallowance of the claimed tax benefits in three different cases.

The IRS will continue to disallow the tax benefits claimed in these abusive transactions and will continue to defend its position in court. The IRS has decided, however, to offer to resolve certain of these cases on certain terms.  "The IRS is taking this step in the interests of sound tax administration", IRS Commissioner Chuck Rettig stated.

IF you were the victim of a abusive tax scheme and now owe the IRS a large tax debt, whether you lost in Tax Court or didn't go to Tax Court, you can still apply for the traditional avenues of Tax Relief. Federal Tax Resolution is the Fourth Oldest Tax Resolution firm in America. We can determine all of your options in the IRS code, including the IRS Fresh Start Program, and the options that exist outside that program. Our Tax Resolution Services are peer recommended and are Nationwide.