There has been a growing trend in recent years with regard to Captive Insurance Companies. As is so often true, that which seems too good to be true is, in fact, too good to be true.
While Captive Insurance Companies can be a perfectly legal and legitimate planning tool for business owners, some IRC 831(b) Captive Insurance Companies are not what they appear to be and are treated as abusive tax shelters.
The IRS has launched a very significant campaign to evaluate these arrangements and has stated openly its concerns with Captive Insurance Companies. In fact, the IRS has added captive insurance companies to its “Dirty Dozen” list for 2015 under the heading “Abusive Tax Shelters.”
The Dirty Dozen list is a list of tax scams that the IRS is strenuously scrutinizing. In terms of this scrutiny, the IRS has begun tax shelter promoter audits for the promoters of these arrangements. The likely result will be determinations that many of these Captive Insurance Companies are not legitimate — and those who are participating in such arrangements may face audits followed by hefty penalties, as well as assessments of back taxes and interest charges. This is quite serious.
We at the Harris Firm have had significant experience dealing with IRS-attacked financial arrangements. For instance, we have had litigation in various parts of the country over multiple employer plans (“419 (a)(f)(6) plans”), as well as single employer plans such as Section 419e plans, 412i plans, Sections 79 plans, and Section 83 plans (referring to sections of the Internal Revenue Code).
Through the course of this experience, we have developed a network of lawyers in various fields of expertise. In our firm, we handle litigation to help those who have been sold into these arrangements recover their significant losses. But we have colleagues whom we know and trust who can help victims on the front-end. These are lawyers, for instance, who help with the IRS audit. This is a critical part of the equation.
Once a person realizes he is in an IRS-scrutinized arrangement such as a Captive Insurance Company, he or she should contact us. We will guide that person through the myriad of issues by getting help for each stage, the first of which is dealing with the IRS to help minimize the adverse consequences of the audit. The lawyers with whom we associate have had tremendous success with the IRS and I encourage all participants in these arrangements to be proactive and contact us immediately.
Don’t wait until the IRS comes knocking. There are things that can be done proactively which will greatly help.
