Participants involved in abusive microcaptive insurance arrangements should exit the transactions now and not attempt to claim associated deductions on their 2020 tax returns, the IRS said in an April 9 statement. The IRS continues to step up its examinations of such arrangements and assert penalties in arrangements it deems abusive.
The IRS statement follows another case in a string of victories for the IRS challenging such arrangements. Microcaptives are small captive insurers with annual premiums below a certain inflation-adjusted threshold that can take advantage of special tax rules. They have garnered IRS scrutiny in recent years due to their potential for tax abuse.
IRS Commissioner Chuck Rettig said he “strongly urge[s] participants in these arrangements to get independent legal advice separate from those who helped steer them into these abusive arrangements.”
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