Micro-Captive Insurance Arrangements Disclosure – Insurance Laws and Products

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CCA 202244010: What constitutes appropriate disclosure of micro-captive insurance arrangements

Introduction: Disclosure of Micro-Captive Insurance Arrangements

Micro-captive insurance arrangements are a focus area of ​​the IRS. As we discussed in our previous post to discuss Avrahami vs Commissioner, 149 TC No. 7 (2017), micro-captive insurance arrangements can be abusive if used improperly. As a result, the IRS requires disclosure of material facts for a micro-captive insurance agreement on certain information reporting forms. This disclosure provides the IRS with an opportunity to analyze the underlying micro-captive insurance agreement to determine whether it meets the requirements of Section 831(b) and whether the agreement constitutes “insurance” for federal tax purposes. The 40 percent accuracy-related penalty under section 6662(i) ​​may apply to a taxyaper’s undisclosed non-economic substance transactions, which include micro-captive insurance transactions. Advice to the Chief Counsel 202244010Addressed whether taxpayers have adequately disclosed a micro-captive insurance arrangement if they disclosed the material facts of the transactions as reportable transactions on Form 8886 Reportable Transaction Disclosure Statement, but did not disclose the transactions separately on Form 8275; Disclosure Statement required by Notice 2010-62.

Section 6662(i) ​​Accuracy Related Penalties for Undisclosed Transactions in Noneconomic Substances

Taxpayers are liable under Section 6662(b)(6) for failure to recognize tax benefits arising from a transaction without commercial substance with 20 percent accuracy penalties. These penalties are increased to 40 percent under Section 6662(i) ​​if taxpayers fail to adequately disclose transactions without economic substance on a tax return or a tax return that accompanies a tax return. As of the date of CCA 202244010, no Section 6662(i) ​​regulations have been issued. However, preliminary guidelines have been established Note 2010-62.1

Notice 2010-62 Disclosure Requirements

In Notice 2010-62, the IRS stated that taxpayers must disclose noneconomic transactions on Form 8275 or 8275-R to avoid the 40 percent accuracy penalty under Section 6662(i). The notice also requires that taxpayers for transactions that are both reportable transactions under section 6011 and transactions without economic substance under section 6662(b)(6) must disclose the transaction on both Form 8886 and Form 8275. On March 20, 2019, the Treasury Department and the IRS released the Policy statement 2019 on the tax regulation process which prevents the IRS from arguing that Notice 2010-62 has the force and effect of law.

CCA Analysis of Micro-Captive Insurance Agreement Disclosure

CCA 202244010 states that the IRS cannot argue that Notice 2010-62 imposes an obligation on taxpayers to file a Form 8275 because that position would contradict the March 5, 2019 statement of principles on the tax regulatory process. As explained in the policy statement, “[s]Underregulation policies are not intended to interfere with the rights or obligations of taxpayers regardless of the underlying law or regulation” and that the “Treasury Department and the IRS…will not argue that underregulation policies have the force and effect of law.” There are no regulations which require taxpayers to file a Form 8275 disclosing transactions in noneconomic substances to defend against penalties under Section 6662(i).

In the absence of regulations requiring a Form 8275 to disclose a non-economic transaction of substance, the IRS relies on Section 6662(i)(2) and relevant case law to determine whether a disclosure is appropriate. Section 6662(i)(2) defines an “undisclosed non-economic substance transaction” as “any part of a transaction described in sub-section (b)(6) in relation to which the relevant facts affecting the tax treatment , are not adequately disclosed in the statement, including in a statement accompanying the return.”

The CCA found that the courts have not addressed what is appropriate disclosure in the context of Section 6662(i)(2); however, jurisprudence on the interpretation of similar disclosure requirements provided helpful analogies. The Guidance cited several cases that broadly argued that disclosure is appropriate when the taxpayer has provided data or information regarding the treatment of an item to alert the Commissioner to a potential controversy. Accordingly, CCA 202244010 concluded that when a Form 8886 is filed in a timely manner with a statement or qualified amended statement and includes a full description of the relevant facts of a non-economic substance transaction, “taxpayers have a strong argument” about which to challenge the IRS have reasonable notice of the transaction pursuant to Section 6662(i). However, CCA 202244010 notes that if the Form 8886 is deficient or does not contain material facts related to the transaction, it may not satisfy the disclosure requirement under Section 6662(i).


In CCA 202244010, the IRS reinforced the statement in the 2019 Statement of Principles that subordinate policies should not affect the rights or obligations of taxpayers regardless of statutory or regulatory requirements, and further that such subordinate policies do not have the force and effect of statute. Therefore, in connection with micro-captive insurance agreements, a taxpayer is not required to disclose the material facts of a micro-captive insurance agreement on both Form 8886 and Form 8275. Instead, a taxpayer satisfies its section 6662(i) ​​disclosure requirements when the taxpayer adequately discloses on a Form 8886 all material facts relating to the micro-captive insurance agreement to alert the Commissioner to a possible controversy. In other words, the transaction should not be treated as an undisclosed transaction of non-economic substance within the meaning of Section 6662(i)(2).

More broadly, the 2019 policy statement indicated a change in the Treasury Department’s and IRS’s approach to the use of sub-prudential guidance and reaffirmed the underlying principles of the reporting and commenting process required to create regulatory rules. This change of authority is also in line with the most recent decision of the Finance Court in
Green Valley Investors LLC v Commissioner159 TC #5 (9 Nov 2022), that was discussed in detail in our previous blog post. in the Green Valley Investors LLC, a majority of the Tax Court ruled that Notice 2017-10, which identified all syndicated easement transactions as of January 1, 2010, as “listed transactions” for Treas purposes. Registration number. Section 1.6011-4(b)(2) (and therefore subject to penalties under Section 6662A) was a statutory provision that was abusively enacted without the notice and comment procedures of the Administrative Procedures Act (“APA”). In addition, a majority of the Tax Court ruled that Notice 2017-10 must be overturned under the APA, rendering the penalties of Section 6662A unlawful.

The 2019 Policy Statement, CCA 202244010, and most recently,
Green Valley Investors, LLC, seem to indicate a philosophical shift by both the Treasury Court and the Treasury Department and IRS, which oppose the use of notices to announce new government regulations that impose new record-keeping and record-keeping requirements. It is unclear whether holding in Green Valley Investors LLC expanded or used in other contexts. However, taxpayers should consider using similar arguments to challenge other Treasury Department and IRS notices or sub-regulatory guidance that introduce new statutory requirements outside of the APA notice and comment process.


1. (September 13, 2010).

The content of this article is intended to provide a general guide to the topic. In relation to your specific circumstances, you should seek advice from a specialist.

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