Captive Insurance Update
Last month, the IRS issued Notice 2016-66, which classifies a significant number of micro- captive arrangements as “Transactions of Interest.”
Under this Notice, these arrangements are now subject to detailed reporting obligations. In addition, captive insurance companies, insured parties and certain owners, and other involved parties and advisors (including captive managers) are required to meet certain disclosure and recordkeeping requirements.
By January 30, 2017, parties that have entered into these “Transactions of Interest,” potentially going back to 2006, will have to file a disclosure statement with the IRS detailing the circumstances surrounding their involvement in the captive arrangement. The disclosures will be utilized by the IRS for various purposes including potential guidance and enforcement.
Failure to file a complete and accurate disclosure statement can present a stiff penalty. Taxpayers will face a penalty of 75% of the decrease in tax as a result of the transaction, with a minimum penalty of $10,000 and a maximum penalty up to $50,000.
Captive managers and other advisors are subject to a $50,000 penalty for each failure to file and a penalty of $10,000 per day after the 20th day of not filing an information list requested by the IRS.
Given these stiff penalties, it is critical that those affected by this Notice pay close attention to the specific requirements imposed.
We hope this information has been helpful to you, and if you have questions about how this notice may affect you, please contact your Whalen & Company representative.
Sources:
https://whalencpa.wpengine.com/
614-396-4200