As we advised in November, the IRS issued Notice 2016-66 which identifies the micro captive insurance strategy as a “transaction of interest.” As a result of this Notice, there is a variety of information that is required to be submitted to the IRS relative to the captive insurance transaction. In accordance with Treasury Regulations, the Notice dictated that the designated information was due to the IRS by January 30, 2017 (90 days after the identification as a “transaction of interest”). ERS has been working with all of our captive owners to collect the necessary information to comply with the notice.
The IRS issued a notice identifying reporting requirements under the authority granted to them by the enactment of the Protecting Taxpayers from Tax Hikes Act (“PATH”) of 2015 for certain insurance companies electing to be taxed solely on investment income under Section 831(b). As we outlined in our earlier updates, the pertinent parts of the PATH Act increase the Section 831(b) premium limit to $2.2m and establishes new diversification eligibility requirements for making the 831(b) election. Neither we nor other industry professionals view this notice as an unexpected development.
This week the IRS issued its 2016 list of tax scams that taxpayers should be concerned about. For the second consecutive year, captive insurance companies are among the "Dirty Dozen." News release IR2016-25 confirms the general disdain of the IRS for captive insurance companies set up for tax avoidance instead of risk financing purposes, including the "micro captive insurance strategy." It bears noting that captive insurance companies are not the only carryover from 2015; in fact 10 of the 12 items on the 2016 list are identical to that on the 2015 list.
Happy New Year! As we mentioned last month, there were proposed changes to section 831(b) which were part of the omnibus bill extending a wide variety of tax provisions. We are pleased to let you know that the Senate approved, and President Obama signed the legislation into law prior to the Holiday break.
On February 3, 2015 the IRS issued the news release IR-2015-19, which lists abusive micro captive insurance companies among the 2015 “Dirty Dozen” tax scams taxpayers should be wary of.
In January 2014 the United States Tax Court released its long awaited decision in Rent-A-Center v. Commissioner, addressing the deductibility for Federal income tax purposes of premium payments made by brother/sister entities to a commonly controlled captive insurance company.
A recent court case underscores the importance of dealing with reputable service providers. (Salty Brine I, Ltd. et al v. United States of America).