A recent appeals court ruling upholding the IRS’s position on certain micro-captive insurance transactions serves as a warning to taxpayers, the IRS said Tuesday.
The U.S. Court of Appeals for the Tenth Circuit ruled May 13 that Reserve Mechanical Corp. didn’t qualify for a small insurance company tax exemption, because it wasn’t engaged in the business of insurance.
Micro-captive transactions involve small insurance companies owned by the businesses they insure that can qualify for tax breaks depending on their premium income. The IRS believes they are abusive tax avoidance vehicles.
“After the Tax Court decided in favor of the IRS ...