The California Franchise Tax Board (FTB) has offered taxpayers the opportunity to resolve potentially abusive micro-captives (831(b)) transactions and receive reduced penalties by entering into a closing agreement to reverse their deductions and related transaction costs.
Eligible taxpayers must submit a complete and signed FTB Notice 2023-02 closing agreement to the FTB between 10 July 2023, and 17 November 2023, which concedes all claimed tax benefits relating to eligible transactions.
The Notice offers the same mechanism to users of syndicated conservation easement transactions (SCE), which have no relevance to captive insurance but have similarly found themselves targeted by the Internal Revenue Service.
California taxpayers who directly or indirectly entered into an eligible transaction prior to the date of the Notice but have not yet realised the tax benefits from any of these transactions are not eligible to participate in the resolution.
“These taxpayers should be aware that they will be subject to all applicable penalties if at a later date they file a return claiming the tax benefits of an Eligible Transaction,” the notice stated.
Eligible taxpayers who do not participate in the resolution described in the Notice, or taxpayers who fail to comply with all the requirements of this Notice, will be subject to all penalties and interest applicable to that transaction.
The FTB Notice follows the IRS publishing proposals in April which, if implemented, would identify certain micro-captives as “listed transactions” and others “transactions of interest”.
Captive Intelligence published a long-read detailing whether the proposals would destroy the industry or be a refreshing change.