Tuesday, May 21, 2024

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831(b) captives “high priority area” for IRS as it completes 2024 Dirty Dozen

The Internal revenue Service (IRS) has wrapped up its Dirty Dozen list for 2024 with micro captives taking the 831(b) tax election remaining a key focus area for the Service.

The IRS’ annual Dirty Dozen campaign lists 12 schemes that it believes put taxpayers, businesses and the tax professional community at risk of losing money, personal information and data.

Captive Intelligence reported in April 2023 that the IRS had proposed new regulations for ‘micro captives’, which divided opinion across America’s captive landscape.

The proposed IRS regulations would see certain 831(b) captives deemed “listed transactions,” and others labelled “transactions of interest”.

The IRS wrapped up the scheme for the year with a warning to taxpayers regarding promoters selling “bogus tax strategies” and “fraudulent offshore schemes” designed to reduce or avoid taxes altogether.

The Service said micro captive transactions continue to be a high-priority enforcement area.

“Taxpayers should be wary of anything that seeks to completely eliminate a legitimate tax responsibility,” said IRS Commissioner Danny Werfel. “Promoters continue to peddle elaborate schemes to reduce taxes and make a handsome profit.

“Taxpayers contemplating these arrangements should always seek advice from a trusted tax professional, not an aggressive promoter focused on pushing questionable transactions to make a buck.”

The IRS noted that it had prevailed in all micro captive Tax Court and appellate court cases decided on their merits since 2017.

However, last week, Captive Intelligence reported that captive management company RMC Group and its president and CEO, Raymond Ankner, had won an important case against the IRS in the United States, with the assistance of law firm, ZMF Law.

Captive Intelligence recently published a Long Read highlighting that the IRS remains at a stand-off with captives making the 831(b) tax election, and there is no indication of an imminent conclusion, with some observers believing the IRS is purposely drawing out the process.