The Problem "ABUSIVE MICRO-CAPTIVES", under IRC 831(b)
In September of 2019, the IRS reached settlement offers with around 200 captives, bringing in a cash windfall and boldening their efforts. As a result, the IRS is ramping up its war on 831(b) "abusive micro-captives".
It recently created twelve more examination teams, with one of their charters being to chase down taxpayers using 831(b) captives to avoid taxes. This is on top of the IRS' recent score of victories against a number of notable micro-captives operating as abusive tax shelters in the last few years. The message from the IRS is clear - engaging with the IRS in the area of 831(b) abusive micro-captive tax shelters will be neither quick, cheap, nor easy.
This move indicates that the IRS will widen the net it cast in fighting these tax shelters, hinting that they will move on to those that have escaped their attention so far. The IRS is expected to open and vigorously pursue examinations of potentially thousands of taxpayers over the next few months, using all available enforcement tools, including summonses.
Targeted taxpayers can expect to face serious consequences including total disallowance of insurance deductions claimed through the captives and inclusion of income. Taxpayers also risk facing substantial penalties of up to 40% on the understatement of their tax liability.
With the IRS putting enforcement into high gear, it's imperative that those owners of captives that have made an 831(b) election take steps now to review their compliance. There are options Captive Insurance Owners can take to shut-down their captives without needing to recognize taxes on their Captive surplus, BUT only if they structure the unwinding the right way.
The Solution "CAPTIVE RESCUE"
First, terminate the captive in a way to avoid the immediate taxation of the captive's surplus and then actualize the potential to receive the surplus tax-free in the future.
1st Choose an Orderly Captive Dissolution that;
Avoids Immediate Income Tax Recognition of Existing Captive Surplus
Have the Option to Receive Captive Surplus Income Recognition in the future in a safe and drastically reduced tax rate...Potentially "Tax-Free"
We can help you keep the IRS at bay and minimize the tax impacts at the same time.