IRS Audit Alert
For the past several years, I’ve been warning my clients, friends & all who chose to listen about the fact that certain Captive Insurance Plans are being reviewed and audited by the IRS.
For those of you who are currently in a Captive, which may be legal, might still have to file under IRS 6707A (Penalty for failure to include reportable transaction information with return). Most people who file do it wrong and then you have compounded the problem by lying to the IRS. Make one mistake on the forms and you have another problem.
Most people who file without using an experienced professional, usually file incorrectly by accident, yet end up having a compound problem to deal with, because now you can add lying to the IRS to your list. One mistake on the form is all it takes.
On November 1, 2016, the Internal Revenue Service issued Notice 2016-66 identifying certain transactions relating to small captive insurance companies as a “transaction of interest.” Prior to this notice, the IRS had identified certain small captives as amongst its list of “Dirty Dozen Tax Scams.” Also, the IRS has been actively examining captives and their owners and litigating cases in the U.S. Tax Court. The new “transaction of interest” designation throws small captive insurance company transactions into a tax reporting regime that can potentially lead to significant penalties and IRS income tax and promoter examinations.