Advisers should not take a “wait and see” approach to the Internal Revenue Service’s (IRS) Notice 2016-66, according to Rachel Partain, member of law firm Caplin & Drysdale.
Partain suggested that advisers should begin collecting information and preparing forms in earnest, given the significant penalties.
The IRS’s Notice 2016-66, released on 1 November, formally labelled micro captive transactions as “transactions of interest”.
The notice requires reporting by any taxpayer involved in micro captive transactions over a number of past years in which the open statutes of limitations applies. The filing deadline for this is 30 January 2017, 90 days from the date of issuance.
Partain said: “Contacting the IRS with questions regarding how to interpret some unclear aspects of the notice might result in the IRS issuing a clarified notice with a new due date, similar to the reissued basket option contract transaction notices in 2015.”
The Self-Insurance Institute of America has already requested more time for 831(b) captives that need to comply with the notice.
In addition, Colorado senator Michael Bennett also contacted the IRS to explain the notice is “overbroad and may be burdensome for small businesses”.
Partain said: “An extension of the 30 January 2017 due date would allow captive managers and the certified public accountants for the insureds and business owners sufficient time to coordinate a consistent response and ensure that the necessary disclosures are filed properly and timely, especially given that managers may be focusing on policy renewals and restructuring ownership structures in order to qualify under section 831(b) beginning in 2017.”