California Introduces Settlement Proposal for Micro-Captive Insurance Transactions and Syndicated Conservation Easement Transactions. What's the IRS' Plan?

On May 31, 2023, the California Franchise Tax Board (FTB) issued Notice 2023-02 providing a limited time settlement opportunity to taxpayers who participated in potentially abusive Micro-Captive Insurance (MCI) and Syndicated Conservation Easement (SCE) transactions.

Terms of the settlement proposal are as follows:

1. Eligible taxpayers include those who participated in a MCI or SCE even if they are currently under examination by the FTB or IRS.
2. Taxpayers must pay the taxes and interest attributable to the reversal of the tax benefits previously received.
3. Taxpayers who have not been contacted by the IRS or FTB will not owe any penalties.
4. Taxpayers who have been contacted by the IRS or FTB, but have not received a Notice of Proposed Adjustment, must pay the tax and interest and a 20% penalty.
5. Taxpayers who have been contacted by the IRS or FTB and have received a Notice of Proposed Adjustment must pay the tax and interest, a 20% penalty and an interest-based penalty.
6. Eligible taxpayers must request to participate in the settlement proposal by submission to the FTB no later than November 17, 2023.

The IRS has been expending substantial resources, both on the civil and the criminal side, examining MCI and SCE transactions. The IRS has also introduced settlement initiatives for both MCI and SCE transactions in an attempt to reduce the number of examinations and cases. With the recent reduction of IRS funding included in the debt ceiling bill, will we see another attempt by the IRS to get taxpayers to the settlement table?

Only time will tell.

If you have any tax-related questions, please feel free to contact me at jcrouch@meadowscollier.com.