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IRS Reporting Deadline Extended for Micro-Captive Insurance Transactions




by:
Brent Senan Kirwan
Leech Tishman - Pittsburgh Office

 
February 16, 2017

Previously published on January 4, 2017

Pursuant to IRS Notice 2017-08, the IRS has extended the deadline until May 1, 2017 for participants in and material advisors of certain micro-captive insurance transactions. Taxpayers engaged in micro-captive insurance transactions described under IRS Notice 2016-66 and their material advisors were initially required to disclose such transactions prior to January 31, 2017. Participants are required to file Form 8886, Reportable Transaction Disclosure Statement, and material advisors are required to file Form 8918, Material Advisor Disclosure Statement. In addition, for purposes of disclosure of transactions described in Section 2.01 of Notice 2016-66, the 90-day period set forth in Treas. Reg. §1.6011-4(e)(2)(i) is extended to 180 days.

Background

IRS Notice 2016-66 identifies certain transactions utilizing the Section 831(b) micro-captive insurance structure as transactions of interest, i.e. potential tax avoidance or evasion transactions. While the IRS and Treasury concede that taxpayers may use Section 831(b) for legitimate risk-management purposes, there are instances in which such arrangements could improperly create tax benefits for the taxpayer. Taxpayers engaged in these transactions and their material advisors must disclose the transactions or they will be subject to penalties of up to $50,000 for individuals and $250,000 for non-individual entities. The specific structure identified by the IRS as a transaction of interest is one in which owners of closely held entities create one or more captive insurance companies and cause the captive to issue insurance policies to the closely held entities, and there is common ownership (including by related parties) between the owners of the closely held entities and the captive insurer. Such transactions, and substantially similar transactions, have been identified as transactions of interest effective November 1, 2016. Taxpayers and their material advisors who have entered into or will be entering into such transactions on or after November 2, 2006 must disclose the transaction as described above.

 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Author
 
Brent Senan Kirwan
Practice Area
 
Taxation
 
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