IRS audits microcaptives Edit post Published on November 15, 2016 LikedUnlikeIRS audits microcaptives1Comment2ShareShare IRS audits microcaptives3 Lance Wallach Lance Wallach Business Owner at National Offices of Lance Wallach A new law governing microcaptives is increasing the risk that the Internal Revenue Service will order an audit of the captive's parent company or the captive manager overseeing the company-owned insurer.
The use of the microcaptives, or those electing to be taxed under Section 831(b) of the U.S. Tax Code, has increased during the past five years, experts said.
Lance Wallach, CLU, ChFC, CIMC, the National Society of Accountants Speaker of the Year, consults on insurance, estate planning, retirement abusive tax shelters and employee benefit plans etc. Lance Wallach advised thousands of high-income clients including hundreds of famous entertainers and athletes about captive insurance, 419, 412i section 79 and other abusive tax shelters. Lance also counseled famous Wall Street luminaries such as Hugh Downs and Louis Rukeyser, the host of 2 long-running programs Wall Street Week with Louis Rukeyser & Louis Rukeyser’s Wall Street. Speaker at over 50 annual conventions and author for more than 500 publications on tax reduction ideas, abusive welfare benefit and retirement plans, captive insurance companies, cash balance plans, life settlements, premium finance, and more. He is a course developer and instructor for Continuing Professional Education courses administered by American Institute of Certified Public Accountants. Lance is a prolific author, having written or collaborated on numerous books, including 'The CPA Guide to Life Insurance', published by BISK Education, 'The Team Approach to Tax and Financial Planning', published by the American Institute of CPA s, and most recently 'Protecting Clients from Fraud, Incompetence, and Scams', published by Wiley. He has been hired as an expert witness on some issues of which he speaks about, and to this day, Lance Wallach has never lost a case. Lance Wallach has appeared on radio and TV financial programs, most recently, on National Public Radio and NBC 25. Lance consults on abusive tax shelters like 412i,419, section 79, captive insurance and VEBA Plans. Additionally, Lance Wallach's expertise is sought after by the U.S. Securities and Exchange Commission, U.S. Department of Labor, the Enforcement Unit of the IRS The State Inusrance Dept etc.
captive insurance 831b micro captives attacked by IRS get help NOW Published on May 18, 2018 Edit article View stats Lance Wallach Lance Wallach Abusive tax shelters, 419, section 79, 412i micro captive insurance, VEBA, expert witness, author, speaker 739 articles Unlike 1 Comment 0
0 Section 831(b) captives' claim to fame is that earnings from premiums are not subject to federal income taxes; only interest income is taxed. The maximum annual premium is currently $1.2 million, but this increases to $2.2 million on January 1, 2017.
The primary users of these captives have been small-to-middle market, privately owned companies. The 831(b) captive was created in 1986 as part of that year's tax overhaul. They were originally designed to help small agriculturally focused insurers weather the liability crisis of the mid-1980s and compete effectively with their larger brethren.
The Controversy The tax advantage provided by Section 831(b) did not long escape the notice of estate and tax planners. For almost 20 years, these firms have used these small captives to shield a portion of their clients' earnings from income tax on the premiums. For over 5 years, the Internal Revenue Service (IRS) has been investigating these transactions and has concluded that many of them may constitute illegal tax shelters. In these cases, the captive promoters appear to follow the rules of captive insurance, but, in reality, these efforts only hide the true nature of their tax shelter strategies.
However, there are a variety of perfectly acceptable reasons for a captive or small insurer to elect to be taxed under Section 831(b). This assumes that taxation is not the primary reason for forming the captive and that the transaction creates economic substance for all parties.
The IRS Change In Notice 2016–66, the IRS made a transaction of interest announcement. A transaction of interest is one that the IRS suspects may be illegal but doesn't have enough information to make the determination. If its suspicions are confirmed through the collection of certain data, the transaction becomes "listed," meaning that it has been determined to be a prohibited transaction.
There are two requirements compelling promoters and taxpayers to divulge the details of the 831(b) transaction—only one of which must be satisfied. First, if the captive's loss ratio is 70 percent or lower, compliance is required. Second, regardless of the loss ratio, if the captive has provided any type of loan or another sort of financial transfer to its parent company or any other company or individual, compliance is required. Moreover, the disclosures must include data from up to 5 years of captive activity.
The 70 percent loss ratio requirement is somewhat high given the fact that commercial insurers' acceptable loss ratios run between 60 and 65 percent depending on the line of insurance. By design, the vast majority of 831(b) tax shelter captives have extremely low loss ratios, as losses reduce the amount of premiums subject to the tax advantage.
The IRS has given taxpayers 3 months to respond to its questions and data requests.
Conclusion Those of us who have long opposed the use of Section 831(b) captives as a tax shelter welcome this development. It means that the taxpayers are forced to divulge to the IRS every facet of the transaction, including how the promoters first introduced the transaction to their taxpayer clients
IRS audits microcaptives
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Published on November 15, 2016
LikedUnlikeIRS audits microcaptives1Comment2ShareShare IRS audits microcaptives3
Lance Wallach
Lance Wallach
Business Owner at National Offices of Lance Wallach
A new law governing microcaptives is increasing the risk that the Internal Revenue Service will order an audit of the captive's parent company or the captive manager overseeing the company-owned insurer.
The use of the microcaptives, or those electing to be taxed under Section 831(b) of the U.S. Tax Code, has increased during the past five years, experts said.
Lance Wallach, CLU, ChFC, CIMC, the National Society of Accountants Speaker of the Year, consults on insurance, estate planning, retirement abusive tax shelters and employee benefit plans etc.
ReplyDeleteLance Wallach advised thousands of high-income clients including hundreds of famous entertainers and athletes about captive insurance, 419, 412i section 79 and other abusive tax shelters. Lance also counseled famous Wall Street luminaries such as Hugh Downs and Louis Rukeyser, the host of 2 long-running programs Wall Street Week with Louis Rukeyser & Louis Rukeyser’s Wall Street.
Speaker at over 50 annual conventions and author for more than 500 publications on tax reduction ideas, abusive welfare benefit and retirement plans, captive insurance companies, cash balance plans, life settlements, premium finance, and more. He is a course developer and instructor for Continuing Professional Education courses administered by American Institute of Certified Public Accountants.
Lance is a prolific author, having written or collaborated on numerous books, including 'The CPA Guide to Life Insurance', published by BISK Education, 'The Team Approach to Tax and Financial Planning', published by the American Institute of CPA s, and most recently 'Protecting Clients from Fraud, Incompetence, and Scams', published by Wiley. He has been hired as an expert witness on some issues of which he speaks about, and to this day, Lance Wallach has never lost a case.
Lance Wallach has appeared on radio and TV financial programs, most recently, on National Public Radio and NBC 25. Lance consults on abusive tax shelters like 412i,419, section 79, captive insurance and VEBA Plans.
Additionally, Lance Wallach's expertise is sought after by the U.S. Securities and Exchange Commission, U.S. Department of Labor, the Enforcement Unit of the IRS The State Inusrance Dept etc.
captive insurance 831b micro captives attacked by IRS get help NOW
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Lance Wallach
Lance Wallach
Abusive tax shelters, 419, section 79, 412i micro captive insurance, VEBA, expert witness, author, speaker
739 articles
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Section 831(b) captives' claim to fame is that earnings from premiums are not subject to federal income taxes; only interest income is taxed. The maximum annual premium is currently $1.2 million, but this increases to $2.2 million on January 1, 2017.
The primary users of these captives have been small-to-middle market, privately owned companies. The 831(b) captive was created in 1986 as part of that year's tax overhaul. They were originally designed to help small agriculturally focused insurers weather the liability crisis of the mid-1980s and compete effectively with their larger brethren.
The Controversy
The tax advantage provided by Section 831(b) did not long escape the notice of estate and tax planners. For almost 20 years, these firms have used these small captives to shield a portion of their clients' earnings from income tax on the premiums. For over 5 years, the Internal Revenue Service (IRS) has been investigating these transactions and has concluded that many of them may constitute illegal tax shelters. In these cases, the captive promoters appear to follow the rules of captive insurance, but, in reality, these efforts only hide the true nature of their tax shelter strategies.
However, there are a variety of perfectly acceptable reasons for a captive or small insurer to elect to be taxed under Section 831(b). This assumes that taxation is not the primary reason for forming the captive and that the transaction creates economic substance for all parties.
The IRS Change
In Notice 2016–66, the IRS made a transaction of interest announcement. A transaction of interest is one that the IRS suspects may be illegal but doesn't have enough information to make the determination. If its suspicions are confirmed through the collection of certain data, the transaction becomes "listed," meaning that it has been determined to be a prohibited transaction.
There are two requirements compelling promoters and taxpayers to divulge the details of the 831(b) transaction—only one of which must be satisfied. First, if the captive's loss ratio is 70 percent or lower, compliance is required. Second, regardless of the loss ratio, if the captive has provided any type of loan or another sort of financial transfer to its parent company or any other company or individual, compliance is required. Moreover, the disclosures must include data from up to 5 years of captive activity.
The 70 percent loss ratio requirement is somewhat high given the fact that commercial insurers' acceptable loss ratios run between 60 and 65 percent depending on the line of insurance. By design, the vast majority of 831(b) tax shelter captives have extremely low loss ratios, as losses reduce the amount of premiums subject to the tax advantage.
The IRS has given taxpayers 3 months to respond to its questions and data requests.
Conclusion
Those of us who have long opposed the use of Section 831(b) captives as a tax shelter welcome this development. It means that the taxpayers are forced to divulge to the IRS every facet of the transaction, including how the promoters first introduced the transaction to their taxpayer clients