For the third consecutive year, the IRS places abusive micro-captive insurance tax shelters on its list of “Dirty Dozen” tax scams. Tax law generally allows certain very small property and casualty companies to elect special tax treatment. These companies, captive insurance companies, are often formed only to insure the risks of affiliated companies. In abusive “micro-captive” structures, the structure lacks many of the attributes of genuine insurance. In Notice 2016-66, I.R.B. 2016-47, 745, the IRS advised that micro-captive insurance transactions have the potential for tax avoidance or evasion.
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