How Can a Micro-Captive Revoke Its Section 831(b) Election?

How Can a Micro-Captive Revoke Its Section 831(b) Election?

January 16, 2025

One potential response to the final micro-captive regulations and the possible requirement to report a listed transaction is to revoke a micro-captive’s section 831(b) election. By doing so, micro-captive insurance companies would no longer be required to file Form 8886 with the Internal Revenue Service (“IRS”) disclosing their participation in a listed transaction.

Historically, once a section 831(b) election was made, it could only be revoked with the consent of the IRS. Obtaining this consent required requesting a private letter ruling (“PLR”), a process that is both time-consuming and costly. For instance, certain PLR requests made after February 1, 2025 – including those for revoking a section 831(b) election – carry a user fee of $43,700, payable to the IRS.

Fortunately, alongside the release of the final micro-captive regulations, the IRS issued Rev. Proc. 2025-13, which introduces a streamlined procedure for taxpayers to revoke their section 831(b) election. This procedure involves submitting a written request to the IRS, either by mail or fax, an example of which is provided in Section 5 of Rev. Proc. 2025-13.

Notable aspects of the streamlined procedures include the following:

• There is no user fee associated with the revocation under Rev. Proc. 2025-13.
• The revocation can take effect in either (1) the year the revocation request is submitted or (2) the first preceding taxable year, provided the request is filed no later than the due date (including extensions) of the micro-captive’s federal income tax return. For a calendar-year taxpayer, this means the revocation can be effective for the 2024 tax year if the request is submitted by October 15, 2025.
• A micro-captive that revokes its section 831(b) election must include a representation in the revocation request stating that it will not make a section 831(b) election for the five taxable years following the year of revocation.
• To qualify for the streamlined procedures, a micro-captive must not have net operating losses from a prior section 831(b) tax year that could be carried over and utilized in the year of revocation.

Rev. Proc. 2025-13 and the new streamlined procedures bring welcome news to owners of micro-captive insurance companies seeking to avoid IRS scrutiny and potential examinations, particularly given the risk of their micro-captive transaction being designated as a listed transaction.

For more information contact our Larson captive team to find out how this will affect your micro-captive. 

LEARN MORE FROM OUR MICRO-CAPTIVE SERIES

• How Did We Get Here? The History of Notice 2016-66 and the Micro-Captive Regulations
• What Is a Listed Transaction, What Is a Transaction of Interest, and Why Does It Matter?
• When Is a Micro-Captive Insurance Company Deemed to Be Participating in a Listed Transaction?
• When Is a Micro-Captive Insurance Company Deemed to Be Participating in a Transaction of Interest?
• Flowchart: Determining Whether a Micro-Captive Transaction is a Listed Transaction or a Transaction of Interest
• What Are the Reporting Requirements for a Micro-Captive Insurance Company That Is Deemed to Be Participating in a Listed Transaction or a Transaction of Interest?
• What Information Is Required to Be Reported on Form 8886, Reportable Transaction Disclosure Statement, with Respect to Micro-Captive Listed Transactions and Transactions of Interest?
• What Is a “Successor Captive” and What Do the Final Regulations Say About Them?