Couple’s Microcaptive Arrangement Penalties Backed By Tax Court

A couple tied to a failed microcaptive insurance arrangement is liable for a 40% accuracy-related penalty because the structure lacked economic substance and wasn’t adequately disclosed to the IRS, the US Tax Court held Thursday.

Judge Albert G. Lauber revisited his 2024 opinion, which held that corporate entity Royalty Management Insurance Co. Ltd. didn’t operate as a bona fide insurance company and that its $1.1 million business expense deduction for “insurance premiums” paid in 2012 weren’t deductible. Citing new Tax Court case law regarding the economic substance doctrine, Lauber sustained the IRS’s accuracy-related penalty, which applies in the case of ...