IRS Issues Micro-Captive FAAs on Reporting and Penalties

The Internal Revenue Service (IRS) recently issued six field attorney advices, referred to as "FAAs," considering whether certain promoted micro-captive transactions under audit are substantially the same as the transactions of interest described in Notice 2016–66, and concluding they were.

FAAs 20211601f through 20211606f also summarized the disclosure rules and penalties applicable to such micro-captive transactions and their material advisors.

The FAAs follow an IRS news release on April 19 detailing the establishment of an IRS Office of Promoter Investigations that will, among other things, coordinate IRS efforts with respect to abusive micro-captives, and on April 9 the agency's urging participants in abusive micro-captives to exit such arrangements and mentioning the 12 micro-captive exam teams formed in 2020 to substantially increase examination of such transactions.

P. Bruce Wright and Saren Goldner are partners in the Tax Department of Eversheds Sutherland (US) LLP located in New York.