IRS CRACKS DOWN ON CAPTIVE INSURANCE AND CONSERVATION EASEMENTS

“Two areas under particular federal scrutiny are conservation easement and captive insurance company cases,” explains Lance Wallach whose side has never lost a lawsuit. “After the 2017 reforms, the IRS began examining every conservation partnership dating from 2016, and formed 12 audit groups just for captive insurance cases.” IRS AUDITS CAPTIVE INSURANCE Just the potential of an IRS examination has intimidated many taxpayers to end their insurance arrangement regardless of the legitimacy. Recently, the IRS has confirmed that 80% of taxpayers under audit for their micro-captive have settled with the IRS. This has only fueled the position of the IRS, and it has now announced that 12 new IRS audit teams have been established. These audit teams are comprised of both Large Business & International and Small Business/Self-employed divisions. As previously mentioned, the IRS has issued limited settlement procedures to a few taxpayers currently in exam. The settlement would require surrendering 100% of the premium and expense deductions taken with a 5-15% penalty depending on whether the taxpayer relied on advice of a competent professional. The captive would be liquidated with taxes paid on the liquidation and a potential penalty as well. We are hoping for more clarification from the IRS. We have had conflicting statements about the liquidation treatment of the premium payments subject to the settlement, but in previous settlements those were treated as capital contributions. IRS PURSUES CRIMINAL ACTION AGAINST SYNDICATED CONSERVATION EASEMENTS IRS Commissioner Chuck Rettig announced on Nov. 12 that the IRS will be pursuing criminal cases against promoters, taxpayers, tax preparers, and other individuals who help proliferate abusive syndicated conservation easements. In addition, the IRS will be scrutinizing the nonprofits that participate. When the IRS identifies an abusive tax shelter scheme as a “Listed Transaction,” the scheme usually dies out because taxpayers and promoters must self-identify their transactions to the IRS and thereby invite audit. Unfortunately, the syndicated conservation easement shelter is so lucrative that bad actors are still widely promoting it throughout the country, even though the IRS listed it as an abusive shelter two years ago in Notice 2017-10 and has ramped up enforcement efforts. Lance Wallach receives hundreds of calls annually to help people fight the IRS and get their money back from the promoters of these scams. As an expert witness, Lance's side has never lost a lawsuit. Google Lance Wallach and your advisor, who do you trust? 516-236-8440 Wallachinc@gmail.com