On March 21, 2022, the U.S. District Court for the Eastern District of Tennessee (the Court) vacated IRS Notice 2016-66. For many captive insurance companies, this came with a sigh of relief as Notice 2016-66 identified certain captive insurance arrangements as “transactions of interest” and triggered additional filing requirements with the IRS.
Notice 2016-66 became effective on November 1, 2016, and required certain taxpayers to disclose to the IRS specific information about their captive insurance transactions. One objective of the notice was to provide the Treasury Department and the IRS with sufficient information to define the characteristics that distinguish tax avoidance transactions from other 831(b) captive related party transactions. As a result, many captives, insureds, and advisors who may not have been engaging in tax avoidance transactions were required to file Form 8886 (Reportable Transaction Disclosure Statement) with the IRS on an annual basis.
Based on the Court’s March 2022 decision, Notice 2016-66 is no longer valid and captives, insureds, and advisors are no longer required to file Form 8886 in response to the notice. The Court also ordered the IRS to return all documents and information provided by taxpayers and material advisors.
While it should be noted that the ruling could be challenged in a higher court at a later date, for now, many taxpayers are relieved of the filing requirement under Notice 2016-66.
The Anderson ZurMuehlen Insurance Specialty Team is proud to be a resource to you. If you have questions regarding the U.S. District Court ruling, please contact us.