Group asks for extension on micro-captive disclosures to IRS

The 831(b) Institute, a group that advocates for micro-captive insurance providers, sent a letter to the Internal Revenue Service requesting an extension on a deadline for disclosing information about transactions that the IRS views as tax shelters.

In January, the IRS issued final regulations designating micro-captive transactions as “listed transactions” and “transactions of interest,” akin to tax shelters. The IRS had proposed the regulations in 2023 but needed to be careful to comply with the Administrative Procedure Act to allow for a comment period and hearing after a 2021 ruling by the Supreme Court in favor of a micro-captive company called CIC Services because the IRS hadn’t followed those procedures back in 2016 when designating micro-captives as transactions of interest.

However, the micro-captive insurance industry wants more time to comply with the new reporting and disclosure requirements.

The 831(b) Institute submitted a letter to acting IRS commissioner Melanie Krause Monday calling for an extension on its new regulatory requirements under Section 831(b) of the Tax Code. The new regulations, 26 CFR 1.6011-10 and 1.6011-11, require micro-captive owners electing under Section 831(b) to file disclosures with the IRS’s Office of Tax Shelter Analysts by April 14 if they have loss ratios below a stated amount or if they have engaged in specific types of financial transactions in the past decade.

“These regulations provide only 90 days for affected micro-captive industry members to review their financial statements and determine if the disclosures apply to their operations,” said Dustin Carlson, president of the 831(b) Institute, in a statement Tuesday. “Due to their size, small businesses are not afforded the same resources to provide the capital or manpower needed to adequately respond to these time-sensitive demands, especially when overlapping with the already-busy April 15 tax filing deadline.” 

His group believes that extending the reporting deadline would provide small businesses and micro-captive owners an extra 90 days to respond to the disclosure requirements, giving them more capacity to adequately and thoroughly research, report and meet the requirements.