Microcaptive Case Warrants Harsher Tax Penalties, Court Says

The IRS can impose accuracy-related penalties against a business owner found to have evaded taxes using microcaptive insurance transactions, according to an opinion by the US Tax Court Monday.

Curtis Kadau, an owner of a metal alloy coating business, will have to pay accuracy-related tax penalties totaling 40% of his unpaid tax bill, according to the opinion written by Judge Christian Weiler. In a matter of first impression from 2025 in case called Patel v. Commissioner, the court ruled that a relevancy hearing is required when analyzing the economic substance doctrine and that heightened penalties can apply in microcaptive ...