A pair of Tax Court decisions involving microcaptive insurance failed to provide any guidance for how small businesses can use it properly amid more IRS scrutiny, according to Van Carlson of SRA 831(b) Admin. The cases, Keating v. Commissioner and Swift v. Commissioner, supported the notion that most or all microcaptives are tax shelters or tax schemes. The victories for the IRS in both cases do not clarify how honest microcaptive owners should structure their arrangements to remain compliant. The IRS dislikes microcaptives and is working to eliminate them through enforcement and regulation, despite congressional support for their existence. The agency’s actions have placed an immense toll on small and mid-sized business owners. The “overreach and abuse” from the IRS toward microcaptive owners is likely to continue without action from Congress or the IRS backing down, Mr. Carlson concludes.
