When businesses owned by a married couple supplemented traditional insurance with “microcaptive” policies from companies the husband controlled, the IRS called foul. The tax agency said these policies were used to claim deductions and avoid paying tax. The Tax Court agreed. It ruled, among other things, that the taxpayers failed to show their captive policies faced independent risks, which are necessary for captive insurance risk distribution. Also, the captives weren’t bona fide insurance arrangements, according to the court. Ultimately, the taxpayers were ordered to pay tax owed and penalties for understating their liability. (T.C. Memo. 2024-13)
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