The IRS Is Cracking Down on an Insurance Strategy Commonly Used as a Tax Shelter

The IRS is intensifying efforts to curb micro-captive insurance, a method companies employ to self-insure and exploit tax benefits. Micro-captives, often considered abusive by the IRS, allow small business owners to pool premiums and cover various risks. 

Recent funding under the Inflation Reduction Act has empowered the IRS to enhance enforcement through advanced technology and cross-departmental collaboration. Micro-captives enable owners to deduct up to $2.65 million in premiums. Still, misuse of these structures for investment purposes has triggered IRS scrutiny. The agency aims to identify and audit complex abusive tax schemes associated with micro-captive insurance.

For more information see Karen Hube “The IRS Is Cracking Down on an Insurance Strategy Commonly Used as a Tax Shelter”, Barrons PENTA, November 14, 2023.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.