Ditch Micro-Captive Insurance Deals, IRS Warns Participants

The IRS, in a news release Friday, urged participants in abusive micro-captives to exit the transactions as soon as possible and to seek “independent legal advice” on the arrangements.

The agency reaffirmed its efforts to combat abusive micro-captives, touting the U.S. Tax Court’s decision in favor of the IRS in Caylor Land v. Commissioner—that a micro-captive didn’t qualify as an insurance company for federal tax purposes. The transactions involve small insurance companies that are eligible for a lower tax rate if their income from premiums isn’t above $2.3 million. The agency believes these transactions can be used for tax ...