What Is a Listed Transaction, What Is a Transaction of Interest, and Why Does It Matter?

What Is a Listed Transaction, What Is a Transaction of Interest, and Why Does It Matter?

January 16, 2025

In Regs. Sec. 1.6011-4, the Internal Revenue Service (“IRS”) outlines the identification and handling of potentially abusive transactions, which are called “reportable transactions.” When a taxpayer participates in a reportable transaction, they are required to disclose additional information on their tax return by attaching Form 8886, Reportable Transaction Disclosure Statement.

There are currently five kinds of reportable transactions:

• Listed transactions
• Confidential transactions
• Transactions with contractual protection
• Loss transactions
• Transactions of interest

The final micro-captive regulations issued on January 10, 2025, identify certain transactions involving micro-captive insurance companies as listed transactions and others as transactions of interest. To understand the full impact of the final regulations on micro-captive insurance companies, it is important to understand how the IRS views listed transactions and transactions of interest.

Listed Transaction

In Regs. Sec. 1.6011-4(b)(2), the IRS indicates that listed transactions are those that they have “determined to be a tax avoidance transaction.” In other words, the IRS treats those participating in a listed transaction as guilty of tax avoidance unless proven innocent. Listed transactions are the most serious and scrutinized of all the reportable transactions. The addition of certain micro-captive transactions as listed transactions marks only the third time since 2008 that the IRS has identified a new listed transaction. There is a presumption that the IRS will examine each micro-captive insurance company deemed to be participating in a listed transaction.

Transaction of Interest

Transactions of interest are those “that the IRS and the Treasury Department believe to have the potential for tax avoidance or evasion but lack sufficient information” to determine whether that is the case. In other words, these are transactions the IRS is interested in (hence the name) and would like to keep track of. But unlike listed transactions, there is no presumption of tax avoidance. Prior to the final micro-captive regulations and under the old guidance of Notice 2016-66, the only reportable transaction designation possible for micro-captive transactions was a transaction of interest.

The addition of a micro-captive listed transaction in the final regulations will allow the IRS to focus their efforts on those micro-captive insurance companies more likely to be participating in tax avoidance.

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
• 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?
• How Can a Micro-Captive Revoke Its Section 831(b) Election?
• What Is a “Successor Captive” and What Do the Final Regulations Say About Them?