When Is a Micro-Captive Insurance Company Deemed to Be Participating in a Listed Transaction?
January 16, 2025
Regs. Sec. 1.6011-10 of the final micro-captive regulations outlines the elements that need to be present for a micro-captive transaction to be considered a listed transaction in the eyes of the IRS. This includes all the following:
- The micro-captive has made the 831(b) election and the election has not been revoked.
- At least 20% of the micro-captive’s assets or the voting power or value of its stock is owned, directly or indirectly, by (a) an insured entity, (b) an owner of an insured entity, or (c) a party related to (a) or (b).
- The micro-captive must have been in existence for at least ten tax years.
- During the last ten tax years, the micro-captive’s loss ratio must be below 30%.
A micro-captive’s loss ratio is computed as follows:
5. One of the following elements is present:
- During the last five tax years, the micro-captive made financing available to (a) an insured entity, (b) an owner of an insured entity, or (c) a party related to (a) or (b) in a transaction that did not result in taxable income to the recipient of the funds, such as a loan or guarantee.
- Prior to the last five tax years, the micro-captive made financing available to (a) an insured entity, (b) an owner of an insured entity, or (c) a party related to (a) or (b) in a transaction that did not result in taxable income to the recipient of the funds, such as a loan or guarantee, and the financing provided has not been returned to the captive as of the end of the preceding tax year.
If the above elements are present, the IRS will consider the micro-captive transaction to be a listed transaction, and the participants to the transaction will be required to comply with additional reporting and disclosure requirements.
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 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?
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