Micro-Captive Insurance Arrangements Disclosure

CCA 202244010: What Constitutes Adequate Disclosure of Micro-Captive Insurance Arrangements

Introduction: Micro-captive Insurance Arrangements Disclosure

Micro-captive insurance arrangements are an area of focus for the IRS. As we have discussed in our prior post discussing Avrahami v. Commissioner, 149 T.C. No. 7 (2017), micro-captive insurance arrangements can be abusive if they are used improperly. As a result, the IRS requires disclosure of the material facts for a micro-captive insurance arrangement on certain information reporting forms. This disclosure gives the IRS the opportunity to analyze the underlying micro-captive insurance arrangement to determine whether it satisfies the requirements of section 831(b) and whether the arrangement constitutes “insurance” for federal tax purposes.

The 40 percent accuracy-related penalty under section 6662(i) may apply for a taxpayer’s nondisclosed noneconomic substance transactions, which includes micro-captive insurance transactions. Chief Counsel Advice 202244010 addressed whether the taxpayers adequately disclosed a micro-captive insurance arrangement where they disclosed the material facts of the transactions as reportable transactions on Forms 8886, “Reportable Transaction Disclosure Statement” but did not separately disclose the transactions on Forms 8275, “Disclosure Statement” as required by Notice 2010-62.

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