IRS will not stop the assault on micro-captives 08-07-2021 IRS will not stop the assault on micro-captives
Shutterstock/Paul Brady Photography More on this story IRS interpretation of Anti-Injunction Act “tyrannically unconstitutional”: CIC Services 18-05-2021 Other related IRS warns micro captive owners to get out of them as soon as possible 12-04-2021 Micro-captives makes IRS "Dirty Dozen" list for 3rd year running 22-02-2017 Advisers to small captives must declare certain transactions to IRS 21-11-2016 This article was written by Lance Wallach, who offers consultancy services to captive insurers.
The captive industry must brace itself for the Internal Revenue Service (IRS) to continue its attacks on the micro-captive, or 831(b) captives industry. The US needs to raise money and the IRS will be given a lot more resources to audit abusive tax shelters like captives, as well as some conservation easements and cryptocurrencies, as a way of raising it.
Hundreds of captive participants have called me for help in recent years, with a variety of different problems and concerns. I served for a period as an expert witness in a case against CIC Services. CIC then went on to beat the IRS in the US Supreme court.
The IRS has every incentive to keep going after micro-captives: in my experience, most disclosure forms are not done properly and the fines are large; and while I like captives, not all small captives follow the law.
Last year I met the IRS Commish and some of his assistants, before they stepped up their attacks on small captives. Since then the IRS has increased the number of people on hand to audit small captives. It has also increased the amount of money and training available for captive audits.
The IRS has long viewed micro-captive insurance transactions as potentially abusive tax transactions. Micro-captives first appeared on the IRS “Dirty Dozen” list of tax schemes in 2014 and have been a priority enforcement issue for the IRS ever since.
Captives that make an election under section 831(b) are taxed on their investment income and not on their underwriting income or losses. Although many related parties use section 831(b) captive insurance companies for non-tax risk-management purposes, the IRS has a longstanding concern regarding section 831(b) captives, and issued Notice 2016-66 identifying many section 831(b) captives as “transactions of interest.”
On April 9, 2021, the IRS issued IR-2021-82, which urged participants in abusive micro-captive insurance arrangements to exit these transactions as soon as possible. At the time of the release, the IRS noted it has increased examinations of micro-captive arrangements and that it recently won another US Tax Court Case with the March 10, 2021 ruling in Caylor Land & Development versus Commissioner, TC Memo 2021-30 (Caylor).
Do not expect these attacks to stop just because of its setback in the high court with CIC Services.
How is the IRS Handling Cryptocurrency Transactions? The first page of IRS Form 1040 asks if at any time during the year you received, sold, or exchanged, or otherwise disposed of any financial interest in any virtual currency. If you have any taxable transactions, you should check “Yes.” If you have a nontaxable transaction – just buying Bitcoin or another cryptocurrency – you should check “No.”
Reporting Taxable Transactions According to IRS Notice 2014-21, the IRS considers cryptocurrency as property, and capital gains and losses need to be reported on Schedule D and Form 8949 if necessary. As a result, the most common crypto transactions that you do need to report on your tax return include:
Selling your Bitcoin or other crypto for cash Trading one cryptocurrency for another cryptocurrency Buying goods and services with your cryptocurrency In addition to reporting your capital gains and losses, you may need to report certain transactions as ordinary income, including:
Receiving airdropped tokens Receiving tokens as a result of a hard fork Staking cryptocurrency Yield farming and Liquidity Mining Referral bonuses
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IRS will not stop the assault on micro-captives
08-07-2021
IRS will not stop the assault on micro-captives
Shutterstock/Paul Brady Photography
More on this story
IRS interpretation of Anti-Injunction Act “tyrannically unconstitutional”: CIC Services
18-05-2021
Other related
IRS warns micro captive owners to get out of them as soon as possible
12-04-2021
Micro-captives makes IRS "Dirty Dozen" list for 3rd year running
22-02-2017
Advisers to small captives must declare certain transactions to IRS
21-11-2016
This article was written by Lance Wallach, who offers consultancy services to captive insurers.
The captive industry must brace itself for the Internal Revenue Service (IRS) to continue its attacks on the micro-captive, or 831(b) captives industry. The US needs to raise money and the IRS will be given a lot more resources to audit abusive tax shelters like captives, as well as some conservation easements and cryptocurrencies, as a way of raising it.
Hundreds of captive participants have called me for help in recent years, with a variety of different problems and concerns. I served for a period as an expert witness in a case against CIC Services. CIC then went on to beat the IRS in the US Supreme court.
The IRS has every incentive to keep going after micro-captives: in my experience, most disclosure forms are not done properly and the fines are large; and while I like captives, not all small captives follow the law.
Last year I met the IRS Commish and some of his assistants, before they stepped up their attacks on small captives. Since then the IRS has increased the number of people on hand to audit small captives. It has also increased the amount of money and training available for captive audits.
The IRS has long viewed micro-captive insurance transactions as potentially abusive tax transactions. Micro-captives first appeared on the IRS “Dirty Dozen” list of tax schemes in 2014 and have been a priority enforcement issue for the IRS ever since.
Captives that make an election under section 831(b) are taxed on their investment income and not on their underwriting income or losses. Although many related parties use section 831(b) captive insurance companies for non-tax risk-management purposes, the IRS has a longstanding concern regarding section 831(b) captives, and issued Notice 2016-66 identifying many section 831(b) captives as “transactions of interest.”
On April 9, 2021, the IRS issued IR-2021-82, which urged participants in abusive micro-captive insurance arrangements to exit these transactions as soon as possible. At the time of the release, the IRS noted it has increased examinations of micro-captive arrangements and that it recently won another US Tax Court Case with the March 10, 2021 ruling in Caylor Land & Development versus Commissioner, TC Memo 2021-30 (Caylor).
Do not expect these attacks to stop just because of its setback in the high court with CIC Services.
Lance Wallach, Internal Revenue Service, IRS
How is the IRS Handling Cryptocurrency Transactions?
ReplyDeleteThe first page of IRS Form 1040 asks if at any time during the year you received, sold, or exchanged, or otherwise disposed of any financial interest in any virtual currency. If you have any taxable transactions, you should check “Yes.” If you have a nontaxable transaction – just buying Bitcoin or another cryptocurrency – you should check “No.”
Reporting Taxable Transactions
According to IRS Notice 2014-21, the IRS considers cryptocurrency as property, and capital gains and losses need to be reported on Schedule D and Form 8949 if necessary. As a result, the most common crypto transactions that you do need to report on your tax return include:
Selling your Bitcoin or other crypto for cash
Trading one cryptocurrency for another cryptocurrency
Buying goods and services with your cryptocurrency
In addition to reporting your capital gains and losses, you may need to report certain transactions as ordinary income, including:
Receiving airdropped tokens
Receiving tokens as a result of a hard fork
Staking cryptocurrency
Yield farming and Liquidity Mining
Referral bonuses