The US Internal Revenue Service (IRS) has extended penalty relief for taxpayers and advisors involved in certain micro-captive insurance transactions, following the release of final regulations on disclosure requirements earlier this year.
In Notice 2025-24, published on 11 April, the IRS stated that individuals and entities who failed to file mandatory disclosure forms for specific micro-captive arrangements may avoid penalties if they submit the required documentation by 31 July 2025.
This includes Form 8886 for participants and Form 8918 for material advisors, both of which must be filed with the Office of Tax Shelter Analysis (OTSA).
The relief applies to penalties under sections 6707A(a) and 6707(a) of the Internal Revenue Code, which address failures to disclose reportable transactions.
It does not cover other reporting obligations, such as filing disclosures with tax returns or maintaining lists of clients, which remain in effect.
The move comes in the wake of the IRS’s finalisation of regulations in January 2025 that formally identify certain micro-captive insurance structures as either “listed transactions” or “transactions of interest”.
These classifications carry strict disclosure and recordkeeping rules, and failure to comply can lead to significant penalties.
Micro-captive transactions have appeared on the IRS’s ‘Dirty Dozen’ list of tax avoidance schemes for several years. The agency continues to challenge arrangements it views as abusive and has disallowed associated tax benefits in audits and litigation.
