Throughout 2020 and 2021, the IRS has repeatedly identified abusive micro-captive insurance arrangements as an audit and criminal enforcement priority. Earlier this month, the IRS issued a press release touting its victory against another micro-captive insurance arrangement in Caylor Land & Development, Inc. v. Commissioner.   The IRS continues to pressure taxpayers who are engaged in abusive micro-captive arrangements to exit them and not report deductions associated with the micro-captive arrangements on their returns.

As part of its robust enforcement sweep, the IRS last summer formed 12 micro-captive examination teams to crack down on micro-captive arrangements. The IRS continues to audit existing micro-captive companies and has started to tighten its settlement parameters with continued legal victories in the courts. As a result, it is becoming more and more difficult for businesses involved in micro-captive insurance arrangements to exit these without penalty. The cases continue to pile in favor of the IRS’s position, narrowing the time horizon to exit a captive insurance arrangement without significant tax consequences.

While captive insurance is a potentially smart and savvy strategy for some businesses, micro-captive insurance companies need to pay particularly close attention to compliance issues in light of the IRS’s sweeping enforcement effort. If your business is actively participating in a captive insurance arrangement, now is the time to speak to a Shmuel Law Group attorney to discuss whether the IRS has a basis for targeting your business, and what options are available to you.

It is important to be proactive in this area, as the IRS continues to express an enforcement priority against the micro captive insurance industry. Our attorneys have extensive experience advising businesses in diverse industries that have entered into captive insurance arrangements.  Now is the time to consult with us to determine your risk and identify opportunities to unwind from a defective captive insurance arrangement before the IRS initiates an investigation.