Notice 2016-66 was issued on November 1, 2016 to provide guidance on reporting requirements for 831(b) Captive Insurance Companies and details how to submit that data and who is required to file.
The information requested in Notice 2016-66 is expected to assist the IRS in gaining knowledge on what structures are out there and conclude if additional scrutiny is warranted. Much of the information is data that the insurance regulators already receive as part of their initial and ongoing review of captives in their jurisdiction. The reporting requirements are also extended to advisors who may be deemed to be Material Advisors to the transaction. Form 8918 will be required to be submitted for those advisors that meet the reporting threshold or wish to make a “Protective Filing”.
At a surface level, the Service acknowledges (not surprisingly to those that are active in this space) that 831(b) Captives are “Transactions of Interest” and have the potential for tax avoidance, but also acknowledges that 831(b) Captives can be set up for valid risk management purposes. The Oxford message since inception has always been to follow the rules, have solid business purpose and documentation of economic substance, utilize a compliant risk distribution structure, invest like an insurance company and file claims when losses occur where Captive coverage is in place. When these criteria are met, additional information reporting should not be of concern for any existing or prospective Oxford client, nor their advisors.