Friday, April 9, 2021
On April 9, 2021, the IRS urged taxpayers who engage in micro-captive insurance arrangements to exit these transactions. This announcement follows an IRS victory in the U.S. Tax Court, which found that such arrangements are not eligible for the tax benefits claimed. The IRS had previously issued settlement initiatives following victories in Tax Court.
IRS Wins in Tax Court
On March 10, 2021, the U.S. Tax Court held in
Caylor Land & Dev. v. Commissioner, T.C. Memo. 2021-30 (2021), that a micro-captive arrangement failed to qualify as insurance for federal tax purposes.
Caylor involved a standard micro-captive structure, where the taxpayer incorporated a foreign micro-captive, made an election to be treated as a U.S. corporation for tax purposes, and took tax deductions on premium payments made to the micro-captive, while the micro-captive excluded such premium payments from income. U.S. Tax Court Judge Mark Holmes cited three previous IRS vi