United States

Captive insurance reportable transaction disclosure deadline extended

Relates to micro-captives identified as ‘transactions of interest’


Participants in certain captive insurance arrangements must file disclosures with the IRS as provided in Notice 2016-66, which the IRS issued on Nov. 1, 2016. These transactions involve certain captive insurance companies that have sought a partial tax exemption by filing an election under section 831(b) of the Tax Code. Previously, the initial deadline for filing these disclosures was Jan. 30, 2017. In response to extension requests, however, the IRS has issued Notice 2017-08, extending the initial disclosure filing deadline to May 1, 2017.  

No changes other than the disclosure filing deadline extension

Notice 2017-08 only extends initial filing due dates; it does not alter disclosure filing requirements in any other manner. Our previous article, Reportable transaction disclosures now required for micro-captives, discusses these filing requirements. The article addresses:  

  • The captive insurance transactions identified by the IRS as reportable transactions of interest, which the IRS’ notices call 'micro-captive' transactions 
  • Who must disclose their participation in these micro-captive transactions to the IRS

Who is required to file disclosures with the IRS and what must be filed?

Business owners, businesses, captive insurance companies and intermediaries that have participated in a transaction substantially similar to the micro-captive transaction described in Notice 2016-66, section 2.01 (Participants) are required to disclose the transaction to the IRS if they have entered into it after Nov. 2, 2006. There are limited exceptions for situations in which the statute of limitation for tax assessment has closed for all relevant tax years.

Disclosure is made by filing Form 8886, Reportable Transaction Disclosure Statement. It must identify and describe the transaction in sufficient detail for the IRS to be able to understand its tax structure and the identity of all parties involved in the transaction. In addition, the disclosure should include when and how the Participant became aware of the transaction.

Participants who fail to timely file a disclosure may be subject to a penalty. The penalty is 75 percent of the tax reduction attributable to the transaction with a minimum penalty of $10,000 ($5,000 for an individual).    

In addition, a person acting as a material advisor has a disclosure requirement using Form 8918, Material Advisor Disclosure Statement. Notice 2017-08 addresses this requirement, too, providing a new initial deadline of May 1, 2017, for filing micro-captive material advisor disclosures. Generally, a material advisor is defined as a person providing advice or assistance with respect to organizing, managing, promoting or carrying out any reportable transaction, and derives gross income in excess of $50,000.

May 1, 2017, due date for initial disclosures

Participants in a micro-captive transaction must file an initial disclosure statement with the IRS Office of Tax Shelter Analysis (OTSA) by May 1, 2017.

Participants in a micro-captive transaction during years for which they have not yet filed tax returns generally must file a disclosure statement for that taxable year with their tax returns, and the disclosure must also be filed with OTSA if it is the first Form 8886 filed by the taxpayer with respect to the transaction. However, the earliest due date for Participants’ micro-captive disclosure filings is now May 1, 2017, because of the extension provided by Notice 2017-08.

For example, consider a Participant with an April 18, 2017, return filing deadline for his, her or its calendar-year 2016 tax return (the April 18, 2017, due date applies rather than April 15, 2017, due to weekend/holiday rules). The May 1, 2017, initial due date for disclosing the micro-captive transaction applies to this Participant regardless of whether he, she or it extends the due date for filing the 2016 tax return.

Taxpayers should consult their tax advisors regarding the status of their captive insurance arrangements and whether they must file Forms 8886 disclosing the arrangements.


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