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Tax Notes Talks to Rachel Partain on Microcaptive Insurance

May 14, 2019, Tax Notes

The IRS’s microcaptive insurance compliance campaign has advanced the agency’s identification of abusive tax avoidance transactions, but providing guidance on legitimate captives has proven to be a challenge.

. . .

'Behind the Eight Ball’

Rachel L. Partain of Caplin & Drysdale told Tax Notes before the ABA conference that taxpayers are “behind the eight ball now” in trying to show flaws in the court’s application of different factors — such as the circular flow of funds — when assessing risk distribution for section 831(b) microcaptives.

The court has disregarded how quota share insurance arrangements work and has generally determined that they represent a circular flow of funds that taints the risk distribution assessment, she said.

With each new decision merely referencing Avrahami and Reserve — as the court did in Syzygy — potentially ill-advised determinations on specific issues get set in stone, creating an uphill battle for future litigants, Partain said.

For the full article, please visit Tax Notes’ website (subscription required).

Excerpt taken from the article “Makeup of a Valid Microcaptive Arrangement Could Remain a Mystery" by Emily Foster for Tax Notes.

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