The Captive Insurance Companies Association ("CICA"), a trade association representing the captive insurance industry, has issued a statement on section 831(b) companies with cautionary language: The traditional captive insurance company industry and CICA are extremely concerned about the misuse of small captives utilizing the IRC 831(b) election and the attendant publicity about "captives" being a tax avoidance device. Although there is nothing wrong with the utilization of the 831(b) election when a small captive insurance company is truly engaged in insuring the risk of its parent company/owner(s), the traditional captive insurance industry strongly opposes the utilization of small 831(b) captives primarily for tax sheltering purposes. In simple language, do 831(b)s right or don't do them at all!
It is no secret that the IRS has increased its scrutiny of small captive insurance companies (“Captives”) utilizing section 831(b) of the Internal Revenue Code (IRC). Captives operating under this section have the advantage of not having to pay income tax on premiums up to $2.2 million ($2.25 million for 2017). This benefit, along with various other financial and estate planning opportunities, have made an 831(b) captive very tempting for business owners. Unfortunately, this temptation often leads to abuse.
ReplyDeleteIn an effort to identify potential abuse, the IRS on Nov. 1, 2016 issued Notice 2016-66, 2016-47 IRB, titled “Transaction of Interest – Section 831(b) Micro-Captive Transactions.” The notice explains that the IRS now lists what it describes as micro-captive transactions on its “watch list” and requires those transactions to be reported on an information statement attached to the company’s annual tax return. A micro-captive transaction is described as a transaction entered into between the captive insurance company and a related party in order to avoid paying tax by shifting income from the related party to the 831(b) captive in the form of an insurance contract.
During the first year of reporting, transactions entered into on or after Nov. 2, 2006 that meet the criteria described below must be reported on the information statement:
A person or entity has direct or indirect ownership over Company A;
Company A enters into a contract (that is considered insurance by both parties) with a related captive insurance company;
The captive insurance company is registered as an 831(b) and is at least 20% owned, directly or indirectly, by the person or entity or the related parties of the person or entity that has direct or indirect ownership over Company A; and
One or both of the following occur:
The liabilities for insured losses and claimed administrative expenses for the most recent five years are less than 70% of premiums earned less dividends paid by the captive insurance company over the most recent five years
The captive insurance company at any time during the most recent five years has provided a loan, guarantee or transfer of the captive insurance company’s capital to the aforementioned related parties
This type of disclosure will no doubt raise red flags and welcome a review, and potentially an audit, by the IRS. In any case, it is recommended to file under 6707
a with a CPA who has done many filings and in independent of the captive.
Notice 2017-10 PDF – Syndicated Conservation Easement Transactions - This notice describes certain transactions in which some promoters are syndicating conservation easement transactions that purport to give investors the opportunity to obtain charitable contribution deductions in amounts that significantly exceed the amount invested. The promoters identify a pass-through entity that owns real property, or form a pass-through entity to acquire real property. Additional tiers of pass-through entities may be formed. The promoters then syndicate ownership interests in the pass-through entity or tiered entities that owns the real property, suggesting to prospective investors that they may be entitled to a share of a charitable contribution deduction that equals or exceeds two and one-half tim
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Lance Wallach
@LanceWallach
I was pulled over by a cop last night and he asked if I had a police record
Apparently Roxanne was not the right answer
captive ins audits lawsuits 831bmicro U need help
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419, section 79 412i and micro captive are audited by IRS, u need help, 4955 views, 32
ReplyDeleteNotice 2017-10 PDF – Syndicated Conservation Easement Transactions - This notice describes certain transactions in which some promoters are syndicating conservation easement transactions that purport to give investors the opportunity to obtain charitable contribution deductions in amounts that significantly exceed the amount invested. The promoters identify a pass-through entity that owns real property, or form a pass-through entity to acquire real property. Additional tiers of pass-through entities may be formed. The promoters then syndicate ownership interests in the pass-through entity or tiered entities that owns the real property, suggesting to prospective investors that they may be entitled to a share of a charitable contribution deduction that equals or exceeds two and one-half tim
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