IRS urged to consider delaying response deadline for new letters Enforcement push could be opportunity to revisit legitimacy of claimed tax benefits The IRS’s latest enforcement push against small insurance companies seen as tax shelters comes as businesses, including insurers, deal with the economic fallout of the coronavirus pandemic.
Owners of small insurance companies, known as micro-captives, recently received letters from the IRS—Letter 6336 (3-2020)—stating the agency had information that they may have claimed tax benefits for which they weren’t eligible. The letters, which warned the owners that they may be subject to a future audit and penalties, include a May due date for taxpayer responses.
The IRS has increased scrutiny of micro-captive arrangements in recent years, asserting that some lack the attributes of genuine insurance and are merely created to sidestep taxes. The agency already has several U.S. Tax Court wins under its belt. The letters, which were sent shortly after President Donald Trump declared the Covid-19 outbreak a national emergency, are the latest development in that saga.
While the correspondence doesn’t come as a surprise to the industry, “the timing is unfortunate,” said Steven Miller, a former acting IRS commissioner who now works as the national tax director at alliantgroup LP. His firm is representing a number of companies that have used captive insurance.
Many businesses are dealing with disruptions because of shelter-in-place orders, including office closures and cash flow problems that are requiring immediate attention.
It’s likely the IRS planned the release of the letter far in advance, not accounting for the current crisis, Miller said.
“The service doesn’t turn on a dime,” he said, adding that the agency may consider extending the response date on the letters but it’s unlikely to revoke them entirely.
The letters serve two purposes for the IRS: they warn micro-captives that the agency is serious about auditing them, and the responses can help the agency make a more intelligent decision about where to focus enforcement resources, Miller said.
IRS urged to consider delaying response deadline for new letters
ReplyDeleteEnforcement push could be opportunity to revisit legitimacy of claimed tax benefits
The IRS’s latest enforcement push against small insurance companies seen as tax shelters comes as businesses, including insurers, deal with the economic fallout of the coronavirus pandemic.
Owners of small insurance companies, known as micro-captives, recently received letters from the IRS—Letter 6336 (3-2020)—stating the agency had information that they may have claimed tax benefits for which they weren’t eligible. The letters, which warned the owners that they may be subject to a future audit and penalties, include a May due date for taxpayer responses.
The IRS has increased scrutiny of micro-captive arrangements in recent years, asserting that some lack the attributes of genuine insurance and are merely created to sidestep taxes. The agency already has several U.S. Tax Court wins under its belt. The letters, which were sent shortly after President Donald Trump declared the Covid-19 outbreak a national emergency, are the latest development in that saga.
While the correspondence doesn’t come as a surprise to the industry, “the timing is unfortunate,” said Steven Miller, a former acting IRS commissioner who now works as the national tax director at alliantgroup LP. His firm is representing a number of companies that have used captive insurance.
Many businesses are dealing with disruptions because of shelter-in-place orders, including office closures and cash flow problems that are requiring immediate attention.
It’s likely the IRS planned the release of the letter far in advance, not accounting for the current crisis, Miller said.
“The service doesn’t turn on a dime,” he said, adding that the agency may consider extending the response date on the letters but it’s unlikely to revoke them entirely.
The letters serve two purposes for the IRS: they warn micro-captives that the agency is serious about auditing them, and the responses can help the agency make a more intelligent decision about where to focus enforcement resources, Miller said.
The IRS declined to comment.