The Internal Revenue Service (IRS) has reached a settlement with Bruce Molnar, co-founder and majority owner of Alta Holdings, over the promotion of micro-captive insurance arrangements.
Under the settlement, Molnar agreed to pay penalties under Section 6700 of the Internal Revenue Code for activities conducted between 2005 and 2012.
In his capacity as an officer of Alta, Molnar organised and marketed a programme that involved contracts clients treated as insurance, leading to the creation of entities they classified as captive insurance companies.
The US Tax Court ruled that Alta’s programme, conducted through related entities US Risk Associates Insurance Company and Newport Re, did not meet the definition of insurance for federal tax purposes.
As a result, the court found that Alta’s client could not lawfully deduct payments made under these arrangements, and that the captive, Syzygy, was required to recognise the premiums as taxable income.
The IRS has issued final regulations designating certain micro-captive transactions as listed transactions or transactions of interest, both categories of reportable transactions.
The agency confirmed it will continue to pursue managers, advisors, and participants involved in such transactions.
Abusive tax shelters, including micro-captive insurance arrangements, have been featured in the IRS’s annual ‘Dirty Dozen’ list of abusive tax schemes.
