March 13, 2017
By Allyson Versprille
An Arizona jeweler set up a “micro-captive” arrangement to insure itself against terrorist attacks. The IRS calls it a tax-avoidance maneuver.
If a U.S. Tax Court judge agrees, and delivers a far-reaching opinion, he could strengthen the agency’s hand against such small captive insurers.
“For the IRS the question is, will the decision be broad enough that they’ll be able to use it as leverage industry-wide against promoters of so-called ‘tax shelter captives,’” said Jay Adkisson, a founding partner of Riser Adkisson LLP who practices in the captive insurance area.
Micro-captives qualify under tax code Section 831(b), which allows small captive insurers to deduct up to $2.2 million in premium income from taxes. In recent years, the Internal Revenue Service has ramped up its scrutiny and audits of these structures in the belief that small businesses are using them to insure against improbable risks that they never […]