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Defense Counsel for Taxpayers and Promoters Facing Accusations Related to Micro-Captive Insurance 

The Internal Revenue Service (IRS) has undertaken widespread efforts to target abusive micro-captive insurance arrangements in recent years. Micro-captive insurance arrangements have long been on the IRS’s “Dirty Dozen” list, and enforcement litigation involving these arrangements can expose taxpayers and promoters to substantial liability—including criminal liability in some cases.

The IRS has urged taxpayers using abusive micro-captive insurance arrangements “to exit these transactions as soon as possible.” It has also shown willingness to aggressively target taxpayers and promoters suspected of using these abusive tax-avoidance schemes with litigation. Yet, not all micro-captive insurance arrangements are unlawful, and both taxpayers and promoters will have strong defenses in many cases.

The IRS is Targeting Abusive Micro-Captive Insurance Schemes

Abusive micro-captive insurance schemes are among several forms of abusive tax shelters that are high on the IRS’s list of enforcement priorities. Specifically, the IRS is targeting micro-captive insurance arrangements that allow taxpayers to avoid tax on underwriting income under Section 831(b) of the Internal Revenue Code (IRC). In these cases, the IRS typically alleges that the arrangement does not qualify as “insurance” under federal law—and therefore does not qualify for beneficial treatment under Section 831(b).

As the IRS explains:

“In abusive micro-captive structures, promoters, accountants or wealth planners persuade owners of closely held entities to participate in schemes that lack many of the attributes of genuine insurance.”

To qualify as insurance, an arrangement must generally have four key attributes: (i) insurable risk; (ii) shifting of this risk to the insurer; (iii) risk distribution within the insurer’s portfolio; and, (iv) whether the arrangement constitutes insurance as this term is generally understood. Micro-captive insurance arrangements will often (though not always) lack one or more of these key attributes; and, when this is the case, the IRS will pursue allegations of unlawful tax evasion or tax fraud.

Defending Against Allegations of Micro-Captive Insurance Tax Fraud

Regardless of the circumstances at hand, taxpayers and promoters targeted in micro-captive insurance tax litigation have defenses available. At Brown, PC, we are intimately familiar with the defense strategies that can be used to fend off allegations of using or promoting an abusive micro-captive insurance scheme.

If you are facing an audit, under investigation or facing charges, we can use our experience to protect you by all means available. We handle high-stakes civil and criminal federal tax matters for taxpayers, promoters and professionals, and we have a long track record of securing favorable outcomes for our clients. But, while we can use our experience to help protect you, it is important that you engage counsel to start communicating with the IRS on your behalf as soon as possible.

Request a Consultation with a Federal Tax Defense Attorney at Brown, PC

If you would like more information about our representation for federal micro-captive insurance tax litigation, we invite you to get in touch. To request an appointment with a federal tax defense attorney at Brown, PC, please 888-870-0025 or contact us confidentially online today.