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PROCEDURE & ADMINISTRATION

The district court’s decision in CIC Services
appears to remove the Form 8886 filing requirement
for microcaptive arrangements, but the IRS can continue
to contest the issue in other jurisdictions.

insurance arrangement. Currently, in January 2022, shortly before the decision requirements. Matters worth discussing
the absence of clear regulatory guidance, in favor of CIC Services, to hire up to may include whether to seek a penalty
case law has been the primary means of 200 additional attorneys to focus on tax refund or what litigation strategy to
establishing key definitional aspects. schemes such as abusive microcaptive adopt for current cases. ■
The Tax Court’s 2017 decision in insurance arrangements.15 IRS Com-
Avrahami13 addressed when a micro- missioner Charles Rettig was quoted in
captive arrangement may qualify as a news release as saying: “Combating
insurance for federal tax purposes. The abusive tax transactions that threaten Contributors
four requirements for valid insurance set to undermine our tax system remains
Kaitlin Newkirk, CPA, MST, M.Acc., is
out in Avrahami14 are whether the ar- a top priority for our enforcement ef-
an assistant professor in the Williams
rangement involves (1) risk shifting, (2) forts.” The IRS also warned that abusive
College of Business at Xavier University
risk distribution, and (3) insurance risk, microcaptive insurance arrangements
in Cincinnati. Sarah Webber, CPA, J.D.,
and (4) looks like commonly accepted continue to be a key area of focus for
LL.M., is an associate professor in the
notions of insurance. Regulations could IRS enforcement.
School of Business Administration at the
expand taxpayers’ understanding of these As a result of Mann and CIC Services,
University of Dayton in Dayton, Ohio. For
criteria and provide more certainty about tax advisers should be prepared to advise
more information about this article, con-
the proper structuring of microcaptives. clients with microcaptives who have
tact thetaxadviser@aicpa.org.
Regulations could also help the IRS po- previously been involved in litigated
lice abusive microcaptive transactions by cases or who have current disclosure
clarifying when premiums paid to a mi-
crocaptive may not be properly labeled
as deductible. AICPA RESOURCES

A continuing IRS Article
enforcement priority Yasmeh, “Beware of IRS Initiatives Against Microcaptive Insurance
Will the IRS treat the CIC Services deci- Arrangements,” 52 The Tax Adviser 677 (November 2021)
sion as a one-off win for taxpayers, or
Podcast episode
will the decision lead the IRS to revise
how it pursues microcaptive insurance “What You Need to Know About Captive Insurance Companies” (Dec. 11, 2020),
with Bob Keebler, CPA/PFS, and David Slenn, J.D.
arrangements as reportable transac-
tions? In its recent hiring initiatives, the Conference
Service has signaled its continuing com- AICPA & CIMA National Tax & Sophisticated Tax Conference, Oct. 31–Nov. 1,
mitment to pursue microcaptives, which 2022, Washington, D.C., and live online
may suggest that it will decide to draft
a new notice to correct the deficiencies For more information or to make a purchase, go to aicpa.org/cpe-learning or call
the Institute at 888-777-7077.
in Notice 2016-66. Notably, the Office
of Chief Counsel announced plans in

13. Avrahami, 149 T.C. 144 (2017). For more, see Yasmeh, “Beware of IRS 14. Adopted from Le Gierse, 312 U.S. 531, 539 (1941).
Initiatives Against Microcaptive Insurance Arrangements,” 52 The Tax 15. IRS News Release IR-2022-17.
Adviser 677 (November 2021).

24 September 2022 The Tax Adviser