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Microcaptives fall off IRS’ ‘Dirty Dozen’ tax evasion roll

captive insurance

For the first time since 2014, microcaptives were not included in the annual IRS list of “tax scams,” but the agency said it will continue to raise concerns about the vehicles.

In prior years, the IRS has focused on a wide range of alleged tax-avoidance schemes, but this year “the Dirty Dozen focuses on scams that target taxpayers,” the agency said in a statement Thursday.

Microcaptives, which are often referred to as 831(b) captives, have been targeted by the IRS for several years. The agency has previously stated that the transactions represent “a potential for tax avoidance or evasion.”

831(b) captives are often used by small and mid-sized firms that are too small to establish conventional captives, but many observers say they have also been used by wealthy individuals and others to avoid tax.

The IRS has won several recent tax court rulings against 831(b) owners, and last year made settlement offers to up to 200 others.

The IRS each year uses the Dirty Dozen list “to help raise awareness about common scams that fraudsters use to target people,” IRS Commissioner Chuck Rettig said in the statement.

While microcaptives were not included on the list this year, the IRS plans to issue a series of press releases on “illegal schemes and techniques businesses,” the statement said. “Topics will include such scams as abusive microcaptives and fraudulent conservation easements.”

This year’s Dirty Dozen list comprises: phishing; fake charities; threatening impersonator phone calls; social media scams; economic impact payment or refund theft; senior fraud; scams targeting non-English speakers; unscrupulous return preparers; offer in compromise mills – which exaggerate chances to settle tax debts;  fake payments with repayment demands; payroll and HR scams; and ransomware.