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Abusive Small Captive Insurance Companies Added to IRS "Dirty Dozen Tax Scams"

February 13, 2015

For the first time, the Internal Revenue Service (IRS) has included certain small captive insurance companies (CICs) in its annual list of "Dirty Dozen Tax Scams." On February 3, 2015, the IRS released IR-2015-19, which identified the use of abusive small CICs as one of this year's "Dirty Dozen." The release contains a specific discussion of abusive small CICs and lists several facts that the IRS believes are indicative of abuse.

The insured owners of a small CIC can pay up to $1.2 million of deductible premiums to their small CIC each taxable year. Under section 831(b) of the Internal Revenue Code, small CICs can exclude the premiums received from income and pay tax only on investment income. The IRS release acknowledges that small CICs are a "legitimate tax structure." However, the IRS has identified small CICs as a structure that might be implemented abusively. Moreover, the IRS is focusing on CICs in income tax examinations relating to the deductibility of premiums paid to CICs.

Caplin & Drysdale's Tax Controversies Group has broad experience advising and representing businesses in examinations of CICs and small CICs. If you have questions concerning this Alert, please contact:

Rachel L. Partain
rpartain@capdale.com
212.379.6071

  

Mark D. Allison
mallison@capdale.com
212.379.6060

Christopher S. Rizek
crizek@capdale.com
202.862.8852

Charles M. Ruchelman
cruchelman@capdale.com
202.862.7834

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For half a century, Caplin & Drysdale has been a leading provider of a full range of tax, tax controversy, and related legal services to companies, organizations, and individuals throughout the United States and around the world. With offices in New York City and Washington, D.C., the firm also provides counseling on matters relating to bankruptcy, creditors' rights, political activity, exempt organizations, complex litigation, employee benefits, private client services, corporate law, and white collar defense. 

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Suite 1100
Washington, D.C. 20005
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New York, NY 10022
212.379.6000

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Disclaimer
This communication does not provide legal advice, nor does it create an attorney-client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome.

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© 2015 Caplin & Drysdale, Chartered
All Rights Reserved.



 

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Having celebrated our 50th Anniversary in 2014, Caplin & Drysdale continues to be a leading provider of tax, tax controversy, and litigation legal services to corporations, individuals, and nonprofits throughout the United States and around the world. We are also privileged to serve as legal advisors to accounting firms, financial institutions, law firms, and other professional services organizations.

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For more information, please visit us at www.caplindrysdale.com.

Washington, DC Office:
One Thomas Circle, NW
Suite 1100
Washington, DC 20005
202.862.5000
        New York, NY Office:
600 Lexington Avenue
21st Floor 
New York, NY 10022
212.379.6000

___________________________

Disclaimer
This communication does not provide legal advice, nor does it create an attorney-client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome.

Attorney Advertising
It is possible that under the laws, rules, or regulations of certain jurisdictions, this may be construed as an advertisement or solicitation.

© 2017 Caplin & Drysdale, Chartered
All Rights Reserved.