Skip to Main Content
 

Captive Insurance Industry Should Be Aware of State Reporting Obligations for Transactions of Interest

February 10, 2017

On November 1, 2016, the Internal Revenue Service (“IRS”) issued Notice 2016-66, identifying certain transactions relating to “micro-captive” insurance companies as “transactions of interest.”  This designation brings covered captive insurance companies into a Federal reporting regime requiring participants in such transactions, as well as their advisors, to meet certain one-time and annual filing obligations.  Participants and advisors should also be aware that several states have similar reporting obligations, and failure to comply with the state reporting regimes can lead to significant penalties.

Under the Federal reporting regime, participants in micro-captive transactions are required to make a one-time filing of Federal Form 8886 with the IRS Office of Tax Shelter Analysis (“OTSA”) and to file Federal Form 8886 annually with the participants’ Federal tax returns.  “Material advisors” must make a one-time filing of Federal Form 8918 with OTSA and file Form 8918 if the advisor meets certain reporting thresholds with respect to additional transactions. 

The one-time filings were originally required to be filed with OTSA by January 30, 2017.  However, Notice 2017-08, issued on December 29, 2016, extended the one-time filing deadline to May 1, 2017.  The deadline extension is good news for the captive insurance industry, as it gives participants and material advisors more time to prepare the required Federal disclosures.  Participants and material advisors should also use the additional time to ensure compliance with state reporting regimes. 

Approximately a dozen states, including California and New York, have reporting regimes that largely mirror the Federal regime.  Under state legislation, if a transaction is designated a transaction of interest for Federal reporting purposes, the transaction is also a transaction of interest for state reporting purposes.  In general, if a transaction has a “nexus” with one of these states (e.g. a participant is a resident of a state that requires reporting), then the participants and material advisors may be required to meet certain reporting obligations in that state. 

The content, form, and deadline for reporting vary amongst the states.  However, each state imposes penalties on taxpayers that fail to timely or adequately file with the state.  Participants and material advisors should therefore give due consideration to the state reporting requirements and use the next few months to ensure compliance with all applicable reporting regimes.

Caplin & Drysdale's Tax Controversy attorneys have extensive experience with the reporting and recordkeeping regimes for listed transactions.  If you have questions about this Alert, please contact:

Christopher S. Rizek
crizek@capdale.com
202.862.8852

Charles M. Ruchelman
cruchelman@capdale.com
202.862.7834

Rachel L. Partain
rpartain@capdale.com
212.379.6071

Arianna Caldwell
acaldwell@capdale.com
202.862.7851

________________________________________________

About Caplin & Drysdale
Having celebrated our 50th Anniversary in 2014, Caplin & Drysdale continues to be a leading provider of tax, tax controversy, and litigation legal services to corporations, individuals, and nonprofits throughout the United States and around the world. We are also privileged to serve as legal advisors to accounting firms, financial institutions, law firms, and other professional services organizations.

The firm's reputation over the years has earned us the trust and respect of clients, industry peers, and government agencies. Moreover, clients rely on our broad knowledge of the law and our keen insights into their business concerns and personal interests. Our lawyers' strong tactical and problem-solving skills - combined with substantial experience handling a variety of complex, high stakes, matters in a boutique environment - make us one the nation's most distinctive law firms.

With offices in New York City and Washington, D.C., Caplin & Drysdale's core practice areas include:

-Bankruptcy
-Business, Investment & Transactional Tax
-Complex Litigation
-Corporate Law
-Employee Benefits
-Exempt Organizations
-International Tax
-Political Law
-Private Client
-Tax Controversies
-Tax Litigation
-White Collar Defense

For more information, please visit us at www.caplindrysdale.com.

Washington, DC Office:
One Thomas Circle, NW
Suite 1100
Washington, DC 20005
202.862.5000
        New York, NY Office:
600 Lexington Avenue
21st Floor 
New York, NY 10022
212.379.6000

___________________________

Disclaimer
This communication does not provide legal advice, nor does it create an attorney-client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome.

Attorney Advertising
It is possible that under the laws, rules, or regulations of certain jurisdictions, this may be construed as an advertisement or solicitation.

© 2017 Caplin & Drysdale, Chartered
All Rights Reserved.