Explosives Supplier Fights Penalties for Micro-Captive Program

The IRS erroneously imposed $1.7 million in tax deficiencies and penalties for an explosives supplier’s deductions for a micro-captive insurance arrangement, the company said in a petition filed with the US Tax Court.

Buckley Powder Co.—which supplies explosives and related goods and services to the mining industry—said it entered into the arrangement in 2021 because the company operates in a heavily-regulated, ultra-hazardous industry with numerous risks that aren’t economically insurable.

But the IRS adjusted Buckley Powder’s deduction, asserting that the company’s insurance and reinsurance transactions lacked economic substance and that the amounts disallowed weren’t paid-for insurance within the definition ...