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North Carolina Captive Group Seeks Relief from IRS Micro-Captive Letter

North Carolina Flag Against Blue Sky and Clouds
May 08, 2020

The North Carolina Captive Insurance Association (NCCIA) is one of a number of state captive insurance associations protesting recent Internal Revenue Service (IRS) activities aimed at micro-captives.

The NCCIA wrote North Carolina's congressional delegation for help in securing relief from a letter the IRS sent in March to micro-captive owners seeking information related to the owners taking deductions or other tax benefits related to micro-captive activity. Internal Revenue Code § 831(b) allows small insurance companies to elect to be taxed only on their investment income.

The March letter from the IRS "was issued just 4 days into the COVID-19 National Emergency Declaration to approximately 150,000 captive business owners nationwide and in North Carolina," the NCCIA said. "This heavy-handed pronouncement comes at a time when many of our businesses are inaccessible or operating at diminished capacity due to the crisis."

In the NCCIA's letter, Thomas Adams, president and CEO of the NCCIA, said, "During the current crisis, combined with the timing and the burden being placed on our members' businesses, we ask that Congress demand that the IRS suspend this unnecessary audit and examination activity until at least a year after the National COVID-19 Emergency Declaration is withdrawn."

Such a suspension would allow captive owners to mitigate risks, the letter said, and would be consistent with recent extensions and suspensions of various tax filing deadlines and audit activity for individual, head of household, and joint tax-filers, along with corporations, partnerships, and self-employed individuals.

The NCCIA sent a similar letter to US Treasury Secretary Steven Mnuchin and IRS Commissioner Charles Rettig.

Among the other captive associations sending such letters are those in Vermont, Utah, Arizona, and Montana.

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