Abusive Microcaptive Insurance Transactions

The IRS has said a recent court decision upholds its longstanding position regarding abusive microcaptive insurance transactions. In Reserve Mechanical Corp. the court upheld the IRS’s position on abusive microcaptive insurance transactions. The Tenth Circuit affirmed a U.S. Tax Court decision holding that the taxpayer wasn’t engaged in the insurance business and that the purported insurance premiums it received were therefore taxable. After the Tax Court decided in favor of the IRS in numerous cases involving microcaptives, Reserve Mechanical is the first appellate decision recognizing the IRS’s position that these abusive transactions are shams.