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IRS Scopes In On Micro-Captive Tax Evasion Risk
Source:
tax-news.com
- Nov 4, 2016
In Notice 2016-66, the US Internal Revenue Service (IRS) has warned that the use of so-called "micro-captive transactions" have "a potential for tax avoidance or evasion," as it believes they may be established more to avoid federal income tax rather than for their stated aim of providing additional insurance for clients.
The IRS said that it is aware of such transactions whereby taxpayers try to reduce their taxable income by entering into insurance contracts with captive micro-insurance companies, thereby claiming income tax deductions for insurance premiums.
On the other hand, the micro-captives (with annual written premiums of less than USD1.2m) are allowed to elect to pay tax only on their investment income, and can thereby exclude the payments they directly or indirectly receive under the insurance contracts from their taxable income.
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Category: IRS
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