Friday, January 31, 2020

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Friday January 31 2020

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IR-2020-26: IRS takes next step on abusive micro-captive transactions; nearly 80% accept settlement, 12 new audit teams established

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IRS Newswire January 31, 2020

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Issue Number:    IR-2020-26

Inside This Issue


IRS takes next step on abusive micro-captive transactions; nearly 80% accept settlement, 12 new audit teams established

WASHINGTON − The Internal Revenue Service announced today the overwhelming acceptance of a time-limited settlement offer made to certain taxpayers under audit who participated in abusive micro-captive insurance transactions.

Nearly 80% of taxpayers who received offer letters elected to accept the settlement terms. In addition, the IRS is establishing 12 new examination teams that are expected to open audits related to thousands of taxpayers in coming months.

"The overwhelming acceptance rate of the private settlement offer is a reflection of the success of the government's work to stop this abuse," said IRS Commissioner Chuck Rettig. "Taxpayers who elected to accept the IRS' terms have done the right thing by coming into compliance with their federal tax obligations and putting this behind them. Putting an end to abusive schemes is a high priority for the IRS."

Abusive micro-captives have been a threat to tax administration and a concern to the IRS for several years. The transaction has appeared on the IRS "Dirty Dozen" list of tax scams since 2014. In 2016, the Department of the Treasury and IRS issued Notice 2016-66, which identified certain micro-captive transactions as having the potential for tax avoidance and evasion. 

The settlement offer followed three U.S. Tax Court decisions confirming that certain micro-captive arrangements are not eligible for federal tax benefits. The terms of the settlement required substantial concession of the income tax benefits claimed by the taxpayer together with appropriate penalties.

The IRS will continue to vigorously pursue those involved in these and other similar abusive transactions going forward. Enforcement activity in this area is being significantly increased. To that end, the IRS is deploying additional resources, which includes standing up 12 new examination teams comprised of employees from the IRS Large Business and International and Small Business/Self-Employed divisions that will be working to address these abusive transactions and open additional exams. These teams will use all available enforcement tools, including summonses, to obtain necessary information.
 
Examinations impacting micro-captive insurance transactions of several thousand taxpayers will be opened by these teams in the coming months. Potential civil outcomes can include full disallowance of claimed captive insurance deductions, inclusion of income by the captive entity and imposition of all applicable penalties.
 
The IRS reminds taxpayers and advisors that disclosure of participation in micro-captive insurance transactions is required with the IRS Office of Tax Shelter Analysis under Notice 2016-66. Failure to properly disclose can result in significant civil penalties. Taxpayers involved in these abusive transactions should immediately consult with independent, competent tax advisors on the proper treatment for past and future tax years to consider best available options.

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IR-2020-25: IRS revises Form 1023 for applying for tax-exempt status; New electronic filing available to help charities

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Issue Number:    IR-2020-25

Inside This Issue


IRS revises Form 1023 for applying for tax-exempt status; New electronic filing available to help charities

WASHINGTON – As part of an ongoing effort to improve service for the tax-exempt community, the Internal Revenue Service has revised Form 1023 to allow electronic filing for the first time starting later this month.

To help charities apply for Section 501(c)(3) tax-exempt status, the IRS has revised Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, and its instructions.

"Filing electronically reduces errors, and we believe this will help provide a smoother application process for those seeking tax exemption," said Tammy Ripperda, Commissioner of the IRS Tax Exempt and Government Entities division. "As we've seen with the 1023-EZ, we believe this change will help with application processing time and help with our wider efforts to improve our work with the tax-exempt community."

The IRS expects the electronic Form 1023 benefits to mirror those realized when Form 1023-EZ went online in 2014. IRS statistics show the 1023-EZ improved application processing time for both the Form 1023 and 1023-EZ while maintaining similar approval and rejection rates between the two forms.

Beginning Jan. 31, 2020, applications for recognition of exemption on Form 1023 must be submitted electronically online at www.pay.gov. The IRS will provide a 90-day grace period during which it will continue to accept paper versions of Form 1023 (Rev. 12-2017).

The required user fee for Form 1023 will remain $600 for 2020. Applicants must pay the fee through www.pay.gov when submitting the form. Payment can be made directly from a bank account or by credit or debit card.

Updates about Form 1023 can be obtained by subscribing to Exempt Organizations Update, a free e-Newsletter from the IRS Exempt Organizations' office. EO Update provides information on tax policy, services and information that's important to tax-exempt organizations including:

  • News releases from the IRS related to exempt organizations
  • New forms, guidance and other publications
  • Changes and additions to the IRS Charities and Nonprofits website
  • Upcoming IRS training and outreach events

Additional information on how to apply for IRS recognition of tax-exempt status is available:

 

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