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Required Disclosure of Captive Insurance Arrangements

By   Ben Peeler

November 15, 2016

The Internal Revenue Service issued Notice 2016-66, 2016-47 IRB on November 1, 2016, which will make it mandatory to disclose certain captive insurance arrangements as "Transactions of Interest." The specific targets are the "micro-captives" created under IRC Section 831(b).
 
These captives had made it onto the IRS annual "dirty dozen" list of tax scams for the 2016 filing season. The notice does not change the law for legitimate captive arrangements but does list some of the characteristics of abusive arrangements. And it now requires all micro-captives and all participants to disclose these arrangements on Form 8886, Reportable Transaction Disclosure Statement.
 
Required Disclosure Due January 30, 2017
Form 8886 must be filed by January 30, 2017, with the Office of Tax Shelter Analysis. If this is not filed timely with all of the required information, penalties will apply. A second copy of Form 8886 will be attached to the 2016 tax returns of the captives, the insured and some of the shareholders/owners that are reportable parties.
 
Caution is recommended in reacting to this, as we are confident that our captives possess legitimate economic and legal justification. This Notice 2016-66 does not reflect any change in the law and these captives remain legitimate and legal structures.
 
Should you need assistance in this area, please contact your Eide Bailly professional or Frank Gariepy (303.459.6706) or Ben Peeler (801.456.5476) from our National Tax Office.