The Internal Revenue Service (IRS) has issued proposed regulations that would abolish certain tax shelters.
The agency’s proposed rulemaking wants to classify certain types of insurance arrangements that let small businesses benefit from tax breaks as either “listed transactions” or “transactions of interest,” making it easier for the IRS to disallow certain claimed tax benefits.
“Listed transactions” are abusive tax transactions, while “transactions of interest” are ones that have the potential for tax avoidance or evasion. Both must be reported to the IRS.
The insurance arrangements that the IRS is targeting are called “micro-captive transactions.” These are insurance arrangements where small businesses create their own insurance companies (called “captive” insurance companies) to cover potential losses or liabilities. These micro-captive insurance companies are eligible for certain tax benefits, such as the ability to pay tax only on their investment income….