By: Brent Kirwan, Esq.

Pursuant to IRS Notice 2017-08, the IRS has extended the deadline until May 1, 2017 for participants in and material advisors of certain micro-captive insurance transactions. Taxpayers engaged in micro-captive insurance transactions described under IRS Notice 2016-66 and their material advisors were initially required to disclose such transactions prior to January 31, 2017. Participants are required to file Form 8886, Reportable Transaction Disclosure Statement, and material advisors are required to file Form 8918, Material Advisor Disclosure Statement. In addition, for purposes of disclosure of transactions described in Section 2.01 of Notice 2016-66, the 90-day period set forth in Treas. Reg. §1.6011-4(e)(2)(i) is extended to 180 days.

Background

IRS Notice 2016-66 identifies certain transactions utilizing the Section 831(b) micro-captive insurance structure as transactions of interest, i.e. potential tax avoidance or evasion transactions. While the IRS and Treasury concede that taxpayers may use Section 831(b) for legitimate risk-management purposes, there are instances in which such arrangements could improperly create tax benefits for the taxpayer. Taxpayers engaged in these transactions and their material advisors must disclose the transactions or they will be subject to penalties of up to $50,000 for individuals and $250,000 for non-individual entities. The specific structure identified by the IRS as a transaction of interest is one in which owners of closely held entities create one or more captive insurance companies and cause the captive to issue insurance policies to the closely held entities, and there is common ownership (including by related parties) between the owners of the closely held entities and the captive insurer. Such transactions, and substantially similar transactions, have been identified as transactions of interest effective November 1, 2016. Taxpayers and their material advisors who have entered into or will be entering into such transactions on or after November 2, 2006 must disclose the transaction as described above.

Leech Tishman is offering both taxpayers and their material advisors engaged in micro-captive insurance transactions assistance in navigating these notices to determine their reporting requirements and in preparing and filing the required disclosure forms. Please contact Wesley Yang or Brent Kirwan for additional guidance on the recent IRS notices.

Wesley Yang is a Partner with Leech Tishman and Chair of the firm’s Taxation Practice Group. Wes is based in the Pittsburgh office and is also a member of the Corporate and Estates & Trusts Practice Groups. Wes can be reached at 412.261.1600 or wyang@leechtishman.com.

Brent S. Kirwan is an Associate in Leech Tishman’s Corporate, Estates & Trusts, and Taxation Practice Groups. Brent is based in the Pittsburgh office and can be reached at 412.261.1600 or bkirwan@leechtishman.com

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Leech Tishman Fuscaldo & Lampl is a full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in alternative dispute resolution, bankruptcy & creditors’ rights, construction, corporate, employee benefits, employment, energy, environmental, health & safety, estates & trusts, family law, government relations, immigration, insurance coverage & corporate risk mitigation, intellectual property, international legal matters, litigation, real estate, and taxation. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in Chicago, Los Angeles, New York and Wilmington, DE.