Introduction. At the beginning of each tax season, the IRS publishes a list of “Dirty Dozen Tax Scams.”2 Normally, this list includes abhorrent behavior that all can agree is wrong and probably criminal such as phone scams, identity theft, return preparer fraud, fake charities and frivolous tax arguments. In 2015, however, the IRS sent a chilling message to all small business owners who have created Section 831(b) captives. In the 2015 Dirty Dozen List, the IRS added a new category called “Abusive Tax Shelters” and under that category had the following to say about captive insurance transactions3 : “Another abuse involving a legitimate tax structure involves certain small or ‘micro’ captive insurance companies. 4 Tax law allows businesses to create ‘captive’ insurance companies to enable those businesses to protect against certain risks. The insured claims deductions under the tax code for premiums paid for the insurance policies while the premiums end up with the captive insurance company owned by same owners of the insured or family members.
Introduction. At the beginning of each tax season, the IRS publishes a list of “Dirty Dozen Tax
ReplyDeleteScams.”2
Normally, this list includes abhorrent behavior that all can agree is wrong and
probably criminal such as phone scams, identity theft, return preparer fraud, fake charities and
frivolous tax arguments.
In 2015, however, the IRS sent a chilling message to all small business owners who have created
Section 831(b) captives. In the 2015 Dirty Dozen List, the IRS added a new category called
“Abusive Tax Shelters” and under that category had the following to say about captive insurance
transactions3
:
“Another abuse involving a legitimate tax structure involves certain small or ‘micro’
captive insurance companies.
4
Tax law allows businesses to create ‘captive’ insurance
companies to enable those businesses to protect against certain risks. The insured claims
deductions under the tax code for premiums paid for the insurance policies while the
premiums end up with the captive insurance company owned by same owners of the
insured or family members.