The IRS can treat purported insurance-premium payments to a “micro-captive” insurer as a type of income subject to a 30% tax if the micro-captive can’t prove that it’s proper to deduct them, according to an IRS legal memo released Friday.
The burden of proof in such situations is on the micro-captive, and without facts allowing it to meet that burden, IRS agents can propose adjustments to classify such payments as fixed or determinable annual or periodical income, or FDAP, which is taxed at 30%, the IRS Office of Chief Counsel said in the memo.
FDAP is passive income earned by ...
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