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Rachel Partain Comments on IRS Imposing Reporting Requirements on Micro-Captive Insurance Deals

November 4, 2016, Bloomberg BNA

A recent IRS notice imposing reporting requirements on certain “micro-captive” insurance arrangements is likely to send a seismic wave through the industry, attorneys told Bloomberg BNA.  For the full article, please visit Bloomberg BNA’s website (subscription required).

Rachel L. Partain, a member of Caplin & Drysdale, said the IRS should expect a flood of captives coming under these new reporting requirements, especially since the notice is retroactive to Nov. 2, 2006. This date is consistent with Treasury Regulations Section 1.6011-4(h)(1), which provides the effective and applicability dates for “transactions of interest.”

“There's a large, large percentage of the captive industry that's going to have to report,” she said. Even now there are “large numbers of captives and managers under examination,” in appeals or in Tax Court, she said.

Partain said her gut reaction is that the IRS will pursue a settlement initiative, because there are “just too many cases for them to work.” She pointed to the Son of Boss Settlement Initiative in the early 2000s as an example. “Boss” stands for bond and option sales strategy. “Son of Boss” was a type of tax shelter promoted as a way to reduce federal income tax on capital gains.

In 2004 the IRS issued Announcement 2004-46 that offered Son of Boss investors an opportunity to “quickly close out of their tax disputes,” according to the agency's website.

Excerpt taken from the article “Is ‘Micro-Captive’ Insurer Guidance the IRS's Nuclear Option?” by Allyson Versprille for Bloomberg BNA.


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