The Internal Revenue Service’s (IRS) ‘Dirty Dozen’ list of tax scams will have little impact on the captive industry, despite micro-captives appearing on the list for the fourth consecutive year, according to John Dies, managing director of tax controversy at alliantgroup.
The IRS announced on 19 March that micro-captives had once again been named as a type of “abusive tax shelter” on their ‘Dirty Dozen’ list of tax scams.
The annually produced list outlines the tax scams that the IRS will be targeting over the coming year.
According to Dies, the announcement is unlikely to impact the captive industry or lead to a reduction in micro-captive formations.
He said: “I believe that the continued scrutiny of the IRS has caused a decrease in formation but being included in the 2018 Dirty Dozen is not likely to be much of an additional deterrent, since captives have been on the list for several years already.”
“What will have a much greater impact is how the US Tax Court comes out on the cases that it has heard.”
Dies suggested the actions of captive owners were unlikely to be influenced.
He explained: “There is no specific guidance or requirements that are outlined in the release so the only action a taxpayer can take is not participate in a micro-captive.”
“It is clear that the Congress’ view differs from the IRS’s in this regard and taxpayers should not let the aggressive position of the IRS deter them from doing what is right for their business.”
