Monday, June 11, 2018
Internal Revenue Service (“IRS”) issued Notice 2016-66
On November 1, 2016, the Internal Revenue Service (“IRS”) 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.
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ReplyDeleteSome promoters, the IRS notes, have tried to distance their particular scheme from those in the IRS crosshairs, claiming their transactions are “different” and don’t suffer from the same flaws as the stated plans.
ReplyDeleteThe agency will soon publish updates to the Conservation Easement Audit Technique Guide that set out new arguments that taxpayers can expect the IRS to make in SCE cases.
The newly established Office of Fraud Enforcement and the National Fraud Counsel are teaming up with examining agents and Chief Counsel attorneys to canvas cases for additional fraud considerations, which might include assertion of the 75% civil fraud penalty, or where applicable, referrals to Criminal Investigation.
The CC Notice, the IRS reminds, also responds to a frequent question raised by several groups of partners who have approached the IRS Chief Counsel, asking to resolve their cases. The Chief Counsel settlement initiative requires the partnership engaged in the SCE transaction - and all of its partners - to agree to settle on the terms offered by the IRS.
The terms include a complete disallowance of the claimed charitable contribution deductions and penalties, although some partners may deduct their cost of investing in the partnership. In rare cases, Chief Counsel has the authority to permit less than all the partners to settle on these terms.