The IRS has targeted and is agressively auditing “Microcaptives” as one of the more common schemes to avoid paying taxes. Larger corporations have created their own “captive” insurance companies for years. This practice is a form of self-insuring, and is supposed to protect the policy holder against risks that traditional insurance may be unwilling (or extraordinarily expensive) to provide.
The targeted microcaptives rarely pay out against any claims, and provide a lucrative tax deduction for the owner of the micro-insurance company. Under present laws, the owner of a microcaptive could potentially write off up to $1.2 Million in tax deductible premiums. The IRS provided an example of a dentist who insured his own office against a terrorist attack.
Recently the IRS place microcaptives on its “Dirty Dozen” list of abusive tax scams, and has begun to challenge individual microcaptives and their owners. If you follow the IRS, the net lesson of the past few years is clear: if you are attempting to shelter income from taxes – whether you’ve used offshore investment and banking accounts, or schemes like a microcaptive – the IRS is becoming more efficient and effective at identifying and targeting these behaviors.
If you are concerned about an IRS audit, tax issues related to foreign accounts or investments or business related tax matters, we invite you to ccontact our office for a free consultation at 866-631-3470.