Promoter of Captive Insurance Program Settles IRS Enforcement Action

Bruce Molnar, cofounder and majority owner of Alta Holdings, LLC, has agreed to pay civil penalties under I.R.C. § 6700 in connection with micro-captive insurance arrangements promoted between 2005 and 2012, according to a statement from the Internal Revenue Service (IRS). The settlement follows continued regulatory efforts targeting transactions the government considers abusive.

According to the IRS, in his role as an officer of Alta Holdings, Mr. Molnar "organized and sold a program using contracts their clients treated as insurance and creating new entities that they treated as captive insurance companies." The program was facilitated through Alta's related entities, US Risk and Newport Re, in which Mr. Molnar also held majority ownership interests.

In a 2019 decision, Syzygy Insurance Co., Inc. v. Commissioner, the US Tax Court found that the arrangement—structured through Alta and its related entities—did not constitute insurance for federal tax purposes. The captive had elected to be taxed under I.R.C. § 831(b), which allows certain small insurers to exclude underwriting income from taxation. The court disallowed the deductions, required the captive to recognize the premiums as income, and held that Syzygy was not engaged in the business of insurance and therefore did not qualify for the 831(b) election.

The Molnar settlement comes amid continued regulatory developments. On January 14, 2025, the Treasury Department and IRS published final regulations identifying certain micro-captive insurance transactions as either listed transactions or transactions of interest, both requiring disclosure. The rules apply to transactions entered into on or after January 1, 2024, and formalize the agency's long-standing position on abusive captive structures.

The regulations largely mirror proposed guidance released in April 2023, with refined definitions and examples to clarify what constitutes a reportable arrangement. Under the new regulations, transactions of interest require additional information disclosure for further IRS scrutiny, while listed transactions are presumed to involve tax avoidance and carry more severe reporting obligations.

Industry groups, including the Self-Insurance Institute of America, have voiced concern that the rules may sweep in legitimate captive structures. The IRS has said the regulations aim to distinguish abusive transactions from compliant programs and provide more clarity to taxpayers and advisors.

The finalization of the regulations formalizes years of administrative and judicial actions against what regulators describe as abusive captive structures.