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Business Tax

June 4 Deadline for Taxpayer Response to IRS Micro-Captive Insurance Letter

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

In a statement, the IRS has automatically extended the due date of responses to IRS Letter 6336 from May 4, 2020 to June 4, 2020.

Background.

In Notice 2016-66, 2016-47 IRB 745, the IRS concluded that certain micro-captive insurance company transactions had the potential for tax avoidance and evasion and notified taxpayers that these transactions were “transactions of interest” that need to be disclosed to the IRS. See IRS: “micro-captive transactions” are transactions of interest.

In January 2020, the IRS announced that it would significantly increase enforcement activity around micro-captive insurance transactions. The IRS said it would begin deploying 12 new examination teams comprised of employees from both the IRS Large Business and International and Small Business/Self-Employed divisions to open additional audits. (IR 2020-26) See IRS turns the heat up on taxpayers participating in micro-captive insurance transactions (02/03/2020).

In March 2020, the IRS provided instructions, on its website, to taxpayers who wished to amend previously filed tax returns to remove deductions or other tax benefits related to micro-captive insurance transactions. See Amending returns that claimed tax benefits from micro-captive insurance.

At the end of March, the IRS sent Letter 6336 (3-2020) to taxpayers it believes participated in micro-captive insurance transactions. The letter says that taxpayers who are no longer getting tax benefits from a micro-captive insurance transaction should respond to the IRS in writing, under penalties of perjury, by May 4, 2020. The letter also states that the IRS will take a taxpayer’s actions in response to the letter into account when considering future compliance activity related to the taxpayer’s micro-captive insurance transaction. (Letter 6336, Micro-Captive Insurance)

New IRS statement.

In a statement, the IRS has automatically extended the due date of taxpayer responses to IRS Letter 6336 from May 4, 2020 to June 4, 2020.

The text of the IRS’s statement is reproduced below:

Letter 6336 requests that taxpayers review their micro-captive insurance filing positions and notify the IRS in writing by May 4, 2020, if they have discontinued taking deductions or other tax benefits from a micro-captive insurance transaction. The letter also encourages taxpayers to consult with an independent tax advisor in regard to prior year filing positions and consider filing amended returns to bring themselves back into compliance if warranted. The letter provides a hotline number for taxpayers to contact us.

The IRS understands that due to the current conditions, taxpayers may need additional time beyond the stated May 4, 2020 due date to provide their written response. As such, the IRS is automatically extending the May 4, due date to June 4, 2020. Those who received the letter need not reach out to us to confirm the extension. If additional time beyond June 4 is needed, taxpayers should call the hotline number (737-800-7995) included in the letter. The IRS will continue to monitor the situation, including the impact of current operations.

To continue your research on micro-captive transactions as transactions of interest, see FTC 2d/FIN ¶ S-4445.6; United States Tax Reporter ¶ 61,114.

 

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