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Insurance Law

Taxpayers decide to ignore the ACA insurance penalty

Woman showing fist in protest by Brooke Lark via Unsplash

Sometimes rules are only meaningful to the extent that they are enforced.

In the case of the “shared responsibility” penalty of the American Care Act (ACA), a growing number of taxpayers are simply ignoring the penalty.

In 2016, the ACA provided for a penalty of $695 or 2.5 percent if income for individuals who did not have insurance coverage for the full year.

However, the ACA also limits the IRS’s ability to collect the tax to only withholding the penalty from refunds. Continue reading “Taxpayers decide to ignore the ACA insurance penalty” »


Jewelry stores and micro-captive tax shelters

Diamond Photo: Wu Yi via Unsplash

A jewelry store taking out an insurance policy to protect against chemical terrorist attacks is pretty unusual. If that highly unusual insurance policy results in significant tax savings, then the federal government will probably have something to say.

That is why the Tax Court case, Avrahami v. Commissioner, may be a death-knell for the use of “micro-captive” insurance companies for tax avoidance purposes.


Some definitions may be helpful:

  1. Captive: An insurance company that is wholly owned and controlled by its insureds.
  2. Micro-captive: A captive insurance company that operates with an annual written premium income of less than $1.2 million.
  3. Tax shelter: A way for individuals and companies to reduce their tax liability.

The tax treatment of micro-captives

In the U.S., micro-captives that meet certain requirements under Internal Revenue Code § 831(b) only have to pay tax on investment income. Continue reading “Jewelry stores and micro-captive tax shelters” »