Captive associations seek more time for micro-captive disclosures
US state captive insurance associations have asked the Internal Revenue Service for an additional 90 days to come into compliance with the tax collector’s new rulings.
A statement from the Nevada state captive association said it was one of many organisations which supported the extension request.
In a letter sent to Melanie Krause, acting commissioner of the IRS, the associations said captives were only given 90 days to comply with new requirements related to micro-captives which required them to review 10 years of financial statements and other documents to determine if they would need to make disclosures.
The disclosures are due next Monday.
“The Internal Revenue Service recently finalized regulations applicable to captive insurance companies electing to be taxed under Section 831(b),” the letter said.
“The Regulations require many participants in the captive insurance industry to file disclosures with the Office of Tax Shelter Analysis based on their involvement with a micro-captive insurance company that has a loss ratio below a stated amount for the applicable time period and/or has engaged in certain types of financing transactions.
“Affected industry members were afforded merely 90 days to review up to 10 years of financial statements and other business records to determine if disclosures are necessary.”
The letter added that the disclosures due dates begin on April 14, which is the peak of tax season for practitioners.
“Small- and mid-sized business have neither the human capital to devote to a rushed response nor the budget to pay for time-urgent demands to accountants, lawyers, and insurance brokers,” the letter said.
“The associations urge you to extend the date of compliance with the regulations by an additional ninety days to allow for thorough research and carefully considered reporting. Please let us know how the Associations may assist you.”
Congress enacted an election under Internal Revenue Code section 831(b) to support affordable and adequate insurance coverage for small- to medium-sized businesses through micro-captive insurance companies, the associations said.
Micro-captives have come under scrutiny in recent years following a series of successful court cases brought by the IRS against micro-captive owners.
The final regulations identify transactions that are the same as, or substantially similar to, certain micro-captive transactions as listed transactions, a type of reportable transaction, and certain other micro-captive transactions as transactions of interest, another type of reportable transaction.
According to the IRS, material advisors and certain participants in these listed transactions and transactions of interest are required to file disclosures with the IRS and are subject to penalties for failure to disclose. The final regulations affect participants in these transactions as well as material advisors.
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