/>iIRS Notice 2025-24: Waiver of Penalties if Micro-captive Reportable Transaction Disclosures Filed by July 31, 2025
On Friday, April 11, 2025, the Internal Revenue Service issued Notice 2025-24 (the “Notice”), which waives applicable penalties under the Internal Revenue Code to participants in, and material advisors to, reportable micro-captive insurance transactions so long as requisite disclosure statements are filed by July 31, 2025.
Required Disclosure Statements
The Treasury Department and the Internal Revenue Service (“IRS”) published final regulations on January 14, 2025 that deemed certain micro-captive insurance transactions as listed transactions and others as transactions of interest (the “Final Regulations”; see 26 CFR 1.6011-10 and 1.6011-11.) Participants in these reportable transactions are required to file disclosure statements with the IRS Office of Tax Shelter Analysis (“OTSA”) within 90 days, by April 14, 2025. Materials advisors to the reportable transactions are required to file disclosure statements with the OTSA by April 30, 2025. You can view our prior alert covering the disclosure obligations here.
Industry Request for Relief
To evaluate applicability of the Final Regulations to prior and existing micro-captive insurance transactions, affected industry participants must review up to 10 years of financial and business records per transaction to determine whether disclosures must be filed, and if so, the information to include in the disclosures. The disclosures’ due dates required this analysis during the height of tax season for practitioners who were already preparing annual federal and state tax returns due April 15, 2025.
In response to the Final Regulations’ fast-approaching compliance deadline, captive insurance associations and advocacy groups submitted letters to then-Acting Commissioner of the IRS, Melanie Krause, seeking an extension of time to file disclosures. The letters urged the IRS to extend the disclosure due dates by an additional ninety days to allow for sufficient time to produce carefully considered reporting and provide a more reasonable compliance period for the small- and mid-sized businesses that primarily utilize micro-captive insurance companies for risk management.
Limited Waiver of Penalties
The Notice effectively grants the captive insurance industry the requested extension of time to comply with the Final Regulations by waiving penalties under 26 U.S.C. § 6707 and 26 U.S.C. § 6707A for material advisors and participants, respectively, if disclosures are filed by July 31, 2025. The IRS stated in the Notice that the penalties are waived through July 31, 2025 in response to stakeholders’ concerns and due to “potential challenges associated with preparing disclosure statements during tax return filing and in the interest of sound tax administration.”
Please note that the waiver of penalties does not apply under 26 CFR 1.6011-4(e)(1) requiring a taxpayer to file a copy of a disclosure statement with the OTSA at the same time that any disclosure statement is first filed by the taxpayer pertaining to a particular reportable transaction. For example, if a taxpayer’s micro-captive insurance transaction was categorized as a reportable transaction for the first time for the taxpayer’s 2024 tax return, then the penalty waiver does not apply, and the tax return and required disclosures are due April 15, 2025. In such situations, the Notice states that taxpayers concerned about the April 15, 2025 deadline may request an extension of the due date for their tax return to obtain additional time to file the related disclosures.
Taxpayers that may be subject to the Final Regulations should consult professional advisors for detailed review and guidance on potential reporting requirements.
