The Self-Insurance Institute of America (SIIA) has suggested that the settlement figures released by the Internal Revenue Service (IRS) earlier this month are “misleading”.
In September last year, the IRS mailed a time-limited settlement offer for certain taxpayers under audit who participated in ‘abusive’ micro captive insurance transactions. In early February, the IRS issued IR 2020-26, revealing that 80 percent of taxpayers who received offer letters elected to accept the settlement terms.
The IRS also announced the establishment of 12 audit teams to look at certain captive structures.
However, SIIA stressed that the figure is misleading in that the 80 percent of the taxpayers have agreed to participate and consider a settlement, but did not actually settle.
According to SIIA, those taxpayers can indeed settle, but also have the option to go to court.
SIIA said it understands that, to date, not a single captive has engaged in a final settlement agreement, and making such an announcement is “premature”.
In addition, SIIA suggested the audit teams will most likely be looking at other issues unrelated to the captive industry, not simply focusing on captives themselves.
SIIA revealed that while approximately 160 captive structures have agreed to consider settlements with the IRS, thousands of captives remain in place that are assisting America’s small and medium-sized businesses to mitigate important and real risk factors.
As part of its ongoing work on behalf of the captive industry, SIIA has established the Captive
Manager Code of Conduct, which provides a set of ethical business conduct guidance to captive
managers.
In a statement, SIIA said: “While the IRS may remain focused on certain micro captive structures, it must do so in a responsible and fair manner. As the industry continues to grow, captive insurance companies remain dedicated to providing a needed risk management structure for America’s small businesses to grow and thrive.”
