Internal Revenue Service

On February 3, 2015, the Internal Revenue Service issued IR 2015-19, which added certain micro captive insurance companies to the IRS “Dirty Dozen” list. The IRS publishes the Dirty Dozen list to inform the public on what the Service will be focusing on and to warn tax return preparers about these same areas.

While acknowledging that these micro captive insurance companies may be legitimate, the IRS then states that many of these companies are being created and operated for tax versus business reasons. As we represent a wide array of taxpayers in the captive insurance area, let’s take a moment to outline what the IRS is looking at and what we know about the large number of examinations now underway.

How Hartford Life and Other Insurance Companies Tricked their Agents and Got People in Trouble with the IRS - HG.org

How Hartford Life and Other Insurance Companies Tricked their Agents and Got People in Trouble with the IRS - HG.org

Agents from Hartford and other insurance companies were shown ways to sell large life insurance policies. This “Welfare Benefit Trust 419 plan or 412i plan should be shown to their profitable small business owners as a cure for paying too much taxes.

A Welfare Benefit Trust 419 plan essentially works like this:



• The business provides a fringe benefit for their employees, such as health insurance and life insurance.

• The benefit is established in the name of a trust and funded with a cash value life insurance policy

• Here is the gravy: the entire amount deposited into the trust (insurance policy) is tax deductible to the company,and

• The owners of the company can withdraw the cash value from the policy in later years tax-free.

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