New Mexico Paprika Producer Widens Microcaptive Dispute with IRS

A New Mexico chili and paprika producer is adding to an existing dispute with the IRS over denied tax deductions for its microcaptive insurance arrangement.

Rezolex Ltd. and Biad Chili Ltd. Co., two related entities behind the Las Cruces, N.M., operation, petitioned the Tax Court to contest government denials that their 2020 insurance payments were valid.

Between the two entitles, the government denied $740,000 in insurance deductions and asserted $274,000 in income tax underpayment and another $55,000 in penalties. IRS notices included in the companies’ petitions allege that the payments “lack economic substance” and that they were “not paid for ...