Article by Phil Karter, Scot Kirkpatrick and Pat McCann on "The Letter in Question"
In an article published on May 27, 2020 in Captive Insurance Times, Chamberlain attorneys Phil Karter, Scot Kirkpatrick and Pat McCann discuss the IRS’ letter, which raises more questions about captive audits in an already uncertain time.
“For taxpayers relying on the use of captive property and casualty insurance policies purchased from Section 831(b) insurance companies or micro-captives (some of which might even provide coverage for the business interruptions occurring as a result of the current crisis), the Internal Revenue Service’s (IRS) recent issuance of Letter 6336 gives rise to another uncertainty that can add to the financial pressure businesses are facing, the risk of a costly and intrusive tax audit,” explain Karter, Kirkpatrick and McCann.
Letter 6336 appears to be the first step to opening those examinations as a tool to help the IRS identify and prioritize its targets for examination. The letter requires a statement made under penalties of perjury regarding the last year the taxpayer claimed deductions or other tax benefits related to small captive insurance transactions.
“Letter 6336 has left many recipient taxpayers and their professional advisors struggling to determine how to best respond or even whether to respond at all,” said Karter, Kirkpatrick and McCann.
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