The Internal Revenue Service (IRS) and Congress have launchedcampaigns to investigate small (or “micro”) captive insurers inrecent months. According to law firm Duane Morris, a number of advisors,accountants and estate planners have been using micro-captives tobenefit from tax and estate planning purposes, instead of usingthem for their intended risk management purposes.
On the surface, these micro-captives still present riskmanagement as part of their benefits. However, these captives havebeen structured so that the tax and estate planning aspectscompletely overwhelm the insurance aspects, Duane Morris claims.This practice has not gone overlooked by the IRS and Congress.
On Feb. 3, the IRS included micro-captives on its “Dirty Dozen”list. In a release, “Abusive Tax Shelters on the IRS 'Dirty Dozen'List of Tax Scams for the 2015 Filing Season,” the IRS explains indetail the fraudulent practices of these micro-captives:
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