IRS Inquires Are Being Issued for Micro-Captive Insurance Companies

Many dealers have received an inquiry regarding “Micro-Captive Insurance” and Notice 2016-66 (“Notice”).  If you continue to participate in a micro-captive insurance transaction covered under the Notice, please continue to disclose your participation in the transaction with your tax return and no other response is necessary.  If you ceased these transactions, please contact your tax advisor to assist with the response.

It appears that these letters were automatically generated for hundreds of taxpayers who have filed Form 8886 (“Form”), Reportable Transaction Disclosure Statement, pursuant to the Notice.  The Form was filed for any reinsurance company that sold gap or other dealer obligor products and the participants in the reinsurance company transaction, which would include the dealership entity selling the products.  If the company is a pass-through entity, the owners also filed the Form.

Please note that the letter does not represent a notification of an audit or examination of the reinsurance company, dealership entity or individual to which the letter was directed. Rather, it is a request for information. The transaction identified in IRS Notice 2016-66 and the tax court cases cited in the letter do not necessarily describe your reinsurance company’s current transaction as we understand it, and we remain confident that a properly structured F&I reinsurance program will continue to meet IRS approval.

If you have any questions regarding your Micro-Captive Insurance Company, please contact our tax advisors listed below.

Sincerely,

SCHNEIDER DOWNS & CO.

Kathy Petrucci, Tax Shareholder

 

Steve Barber, Tax Shareholder

kpetrucci@schneiderdowns.com

Phone: 614 586-7214

 

sbarber@schneiderdowns.com

Phone: 412 697-5463

 

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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