The Internal Revenue Service says taxpayers who have used questionable micro captive insurance arrangements should talk to tax advisors, drop the micro captives, and come tell the IRS what they’ve done.
- A copy of the new IRS micro captive enforcement press release is available here.
- An article about a wave of IRS micro captive audits is available here.
The IRS warned micro captive users to stand down about a year ago. The agency announced in February that it was sending out 12 teams to audit micro captives.
The IRS announced Thursday that it’s continuing to crack down on micro captives.
IRS Commissioner Chuck Rettig said, in a comment included in the new enforcement action announcement, that settlement terms will get worse, not better, and that the IRS has a new Fraud Enforcement Office to help manage the fight.
“Taxpayers are strongly encouraged to use this opportunity to put this behind them and get into compliance,” Rettg said.
If taxpayers stick with abusive micro captives, the IRS will disallow the tax benefits from what it sees as abusive transactions, the IRS said.
The IRS may also make domestic captives include premium payments in their income, and it may “assert a withholding liability related to foreign captives,” the agency said.
The IRS may seek the type of “strict liability penalty” it applies to transactions that lack economic substance, the agency said.
The IRS said it sent enforcement activity letters to micro captive users in March and July.