IRS Flaunts Recent Tax Court Victory in Microcaptive Arena

By: Heather L. Marello, Esq.

In a recent press release, IRS is again urging participants in abusive microcaptive insurance arrangements to cease participation in such transactions.  This message comes after the Service’s recent win in the U.S. Tax Court in Caylor Land & Dev. v. Commissioner, T.C. Memo 2021-30 (2021).  This win marks the fourth major victory in this area, following the IRS’s victories in Avahami v. Commissioner, 149 T.C. 144 (2017), Reserve Mechanical Corp. v. Commissioner, T.C. Memo 2018-86 (2018) (appeal pending at No. 18-9011 (10th Cir. Dec. 20, 2018)), and Syzygy Ins. Co. v. Commissioner, T.C. Memo 2019-34 (2019).

IRS designated microcaptive insurance arrangements as listed transactions through Notice 2016-66, which requires participants to annually disclose participation in arrangements that are substantially similar to those described in the Notice on Forms 8886.  IRS has repeatedly renewed its commitment throughout the COVID-19 pandemic to audit taxpayers and assess deficiencies against those who claim deductions from microcaptive transactions that are deemed to be abusive arrangements. IRS deployed twelve examination teams in January, 2020 to target enforcement on this issue, and the victory in Caylor will only embolden IRS in its enforcement efforts. While these efforts are expanding, the recent tax court decisions have also helped to more clearly define what constitutes an abusive microcaptive, which will help practitioners and taxpayers better evaluate the validity of their individual arrangement.    

Andreozzi Bluestein LLP is experienced in defending microcaptive audits both administratively and before the U.S. Tax Court.  If you or a client participated in a microcaptive arrangement and are being audited or would like to discuss whether you have a reasonable basis to claim deductions from a microcaptive insurance arrangement on your return, please contact the attorneys at Andreozzi Bluestein, LLP for a no-obligation consultation.

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