Case: U.S. Tax Court Upholds IRS Penalties on Microcaptive Insurance Scheme

The U.S. Tax Court held that the taxpayers were liable for accuracy-related penalties related to their microcaptive insurance arrangements, affirming the IRS’s penalty determinations. Taxpayers, a married couple including a physician, formed two microcaptive insurance companies that purportedly provided insurance to the physician’s medical practices. The court found that the transactions lacked economic substance under IRC §7701(o) and sustained penalties under §6662(b)(6) for 2014-2016, as well as increased penalties under §6662(i) for 2014-2015 due to inadequate disclosure. The court also sustained penalties for negligence and substantial understatement of income tax as alternative grounds. [Patel v. Comm’r, No. 24344-17, 165 T.C. ...