Forbes has published an article, “The IRS Warns Again On Microcaptives And Announces A New Office Of Promoter Investigations,” which discusses the IRS News Release that will not allow deduction on premium payments. The article begins as follows:
On April 9, 2021, the IRS News Release IR-2021-82, which advised that the IRS had the previous month won another so-called “microcaptive” case before the U.S. Tax Court, being the Caylor Land decision which you can read about here. The New Release reiterates that the IRS will disallow deductions taken for premium payments to abusive 831(b) captive arrangements, will impose the 40% penalty for lack of economic substance, and (if a taxpayers doesn’t see the light and settle pretty quickly) may also treat the payments to the captive as taxable non-insurance income and assert a withholding liability on non-U.S. domiciled captives.
This is all pretty much the same position that the IRS was taking before the Caylor Land decision, but the IRS likes to put out new releases like these at tax season to remind tax preparers to be on the lookout for these types of transactions and to warn their clients still in them that they had better get an independent second opinion from knowledgeable tax counsel before they file their returns. In other words, there is nothing really new in this particular News Release, but the IRS is using that vehicle as a friendly reminder while folks get their returns together.
Click here to see full article: “The IRS Warns Again On Microcaptives And Announces A New Office Of Promoter Investigations.”
Posted by Bella Hoang, Managing Associate Editor, Wealth Strategies Journal.