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IRS Slow Down in Micro Captive Enforcement? Not so Fast…

By Anthony P. Daddino on January 25, 2022
Late last year, the IRS made a big splash in tax news when it conceded the deductions of micro captive planning in a filed Tax Court case (Puglisi v. Commissioner, available here).  Since that time there has been much commentary on whether the IRS’ concession marked a shift in its heavy-handed enforcement style against micro captive insurance.  Well, the jury remains out, as just last week, IRS Chief Counsel announced plans to hire up to 200 additional attorneys to help combat allegedly abusive transactions.   And what does the IRS include in that category? You guessed it: micro captive insurance arrangements.

In its announcement, the IRS complained that “promoters have been particularly active developing and marketing tax shelter schemes that purportedly enable taxpayers to avoid paying what they legally owe” and that the new hires “will help the IRS manage the increasing caseload in its multi-year effort to stamp out these abusive schemes and ensure that those participating in them pay the tax they owe plus penalties.”  According to the IRS, new hires will work in a variety of areas, including handling cases in the United States Tax Court, as well as working with the Department of Justice Tax Division, which handles refund cases in district courts and the Court of Federal Claims.  Others hired will serve in the IRS national office with a focus on developing global regulatory solutions to the most sophisticated and abusive transactions and providing highly specialized advice to IRS litigation teams.

Of course, micro captive planning was not the only transaction the IRS identified as allegedly abusive.  The IRS also identified syndicated conservation easements, which is still a “major focus for the IRS.”

A copy of the IRS press release is available here.  And if you have any questions about micro captives or any other tax related topic, please do not hesitate to contact me at adaddino@meadowscollier.com or call me at (214) 749-2464.