ALERT: Nearly all 831(b) Captives will be Impacted

If you are or have been involved with a captive insurance company over the last decade which has elected to be taxed under IRC §831(b), then you likely have new reporting requirements in the coming months. These structures have been on the IRS’s “dirty dozen” radar for some time and they are now requiring extensive informational disclosures from taxpayers, promoters and material advisors who have been involved with certain “transactions of interest”. The IRS clearly does not believe all 831(b) captive structures are abusive but acknowledge they lack sufficient information to identify the bad from the good. As such, they have issued notice 2016-66 which will require nearly every 831(b) captive to file additional disclosures by January 30, 2017, or risk incurring significant penalties. This onerous filing obligation will likely extend beyond the captive itself and impact related and unrelated parties that also meet certain criteria set out in the notice. You should pay close attention to this requirement if you have any interaction with what they refer to as a “micro-captive”.

The notice includes a comment period so that the IRS and Treasury can obtain feedback on how these transactions might be addressed in published guidance. Ironically, these should be submitted in writing by the same January 30th due date. While the notice clearly illustrates what these “transactions of interest” are, there are questions left unanswered and further guidance necessary. Given the timing of the notice and the due date for the filing obligation, it’s clear that neither the IRS or Treasury will be able to elucidate the open items that will likely arise. We can only hope that some clarifications will be provided in the coming weeks, or that the IRS and Treasury will acknowledge these and consider revising the impetuous due date.

We will be issuing a more detailed technical white paper on this topic in the coming weeks. However, if you have any questions regarding the impact this notice might have on your captive, its affiliates or service providers, please don’t hesitate to contact us.