The IRS on September 16, 2019 issued a News Release (IR-2019-157) announcing that it was mailing time-limited settlement offers to certain taxpayers currently under IRS examination that had participated in what the IRS considered to be ‘abusive’ Section 831(b) micro-captive insurance arrangements. Only taxpayers that received a settlement offer letter were eligible for the resolution.
At the end of January 2020, the IRS followed up with another News Release (IR-2020-26) announcing that there had been broad acceptance of the settlement offers. The IRS also announced that it would be establishing 12 new examination teams focused on abusive micro-captive insurance arrangements. In the coming months, these teams plan to open audits on thousands of taxpayers participating in such arrangements.
Given the statements in the latest News Release, potentially ‘abusive’ micro-captives and other similar arrangements clearly will continue to be the subject of heightened IRS attention. Therefore, companies with Section 831(b) micro-captives should review existing arrangements for continuing qualification as an insurance company for federal income tax purposes.
Insurance Tax Services Leader, PwC US