Micro-Captive Insurers Have a Small Victory in Court
They no longer have to be a listed transaction but still must report to the IRS
The U.S. District Court for the Southern District of Texas ruled recently that the IRS exceeded its statutory authority when it designated micro-captives as listed transactions. The Court indicated that the IRS did not meet the requirement that micro-captives are by default designed to be “tax-avoidance” activities.
If the IRS requires you to report it as a listed transaction but do not, then the penalties can be extreme. Therefore, the micro-captive industry has fought this rule and finally, at least in this district won removal of the requirement.
However, the Court did rule that the IRS can continue to require these companies to be “listed” as a “transaction of interest”, essentially still requiring companies and taxpayer to list this transactions.
It is a small win, but the IRS will still know you are involved in a micro-captive which will flag the transaction for their review.