WASHINGTON, D.C. — The Internal Revenue Service (IRS) announced a recent settlement with Bruce Molnar, cofounder and majority owner of Alta Holdings, LLC, U.S. Risk Associates Insurance Company Limited (U.S. Risk), and Newport Re, Inc. (Newport Re). Molnar has paid penalties under Internal Revenue Code § 6700 for his role in promoting micro-captive insurance arrangements between 2005 and 2012.
Molnar’s program, conducted through Alta, involved organizing and marketing contractual arrangements that clients treated as insurance while forming related entities they registered as captive insurance companies. However, in the 2019 Syzygy Ins. Co., Inc. v. Commissioner case, the United States Tax Court found that these arrangements did not meet the requirements to be classified as insurance for federal tax purposes. The ruling determined that payments made to the purported insurance companies were not deductible, and the captive company, Syzygy, was required to recognize premiums received as taxable income.
The IRS emphasized its ongoing focus on micro-captive insurance transactions, issuing final regulations to classify certain arrangements as reportable transactions. These regulations categorize specific micro-captive transactions as either listed transactions or transactions of interest, both of which require disclosure to the IRS.
“Taxpayers and advisors involved in non-compliant micro-captive arrangements should be aware that the IRS will continue to vigorously pursue enforcement in these cases,” the agency stated.
The settlement demonstrates the IRS’s commitment to addressing abusive tax strategies and ensuring compliance with federal tax laws.
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