American author Mark Twain popularized the expression that there are, “lies, damn lies and statistics.” I suspect that if he were alive today, he might say, “there are lies, damn lies, statistics and IRS press releases about captive insurance companies.”
But don’t just take our word for it. We have already shared the Self Insurance Institute of America’s (SIIA) statement on the misleading nature of the IRS’s latest press release titled IR 2020-26 – CLICK HERE.
The IRS press release claims that 80% of captives under audit accepted the Service’s standardized settlement offer. However, as numerous commentators have noted at this point, only about 200 captives were even eligible for the offer, and it would be far more accurate to say that 80 percent of those 200 captive owners indicated an interest in POSSIBLY settling with the IRS, not that they have actually decided to do so.
Last week, Bloomberg Tax published an article by Phil Karter, JD and Patrick McCann, JD of the Chamberlain Hrdlicka law firm titled “IRS Announcement Likely Overstates True Impact Of Captive Insurance Settlement.” To read the entire article at Bloombergtax.com, CLICK HERE.
We already addressed the IRS’ settlement offer to captives under audit in our September 2019 article titled “When To Hold ‘Em, When To Fold ‘Em “ – CLICK HERE.
In “When To Hold ‘Em, When to Fold ‘Em,” we pointed out that:
It’s rather clear to most experienced insurance experts and tax controversy attorneys that the Service will lose some of those pending cases. And when it does, other taxpayers with pending cases will be emboldened by the favorable precedent.
We also pointed out that:
[The Service recognizes] that it’s presently poised at a point of maximum leverage over taxpayers, and also that time is of the essence given the pending tax court cases, the Service made an offer to captives under audit to settle on reasonably favorable terms.
How many taxpayers with legitimate structures will succumb to the coercion? That remains to be seen. No doubt, many captive owners will be richly rewarded for deciding to “Hold ‘Em.”
In summary, not nearly as many captive owners as the IRS purports have elected to “Fold ‘em.” And, many captive owners that “Hold ‘Em” may be rewarded while those how “Fold ‘Em” may just wind up being statistics.
Time will tell. In the meantime, take IRS pronouncements on this subject with a larger grain of salt.