§ 1.6011-11 Micro-captive transaction of interest.
(a) Identification as transaction of interest. Transactions that are the same as, or Substantially Similar to, transactions described in paragraph (c) of this section are identified as transactions of interest for purposes of § 1.6011-4(b)(6), except as provided in paragraph (d) of this section.
(b) Definitions. The definitions in this paragraph (b) apply for purposes of this section.
(1) Captive. Captive has the same meaning as provided in § 1.6011-10(b)(1).
(2) Computation periods—(i) Financing Computation Period. Financing Computation Period has the same meaning as provided in § 1.6011-10(b)(2)(i).
(ii) Transaction of Interest Loss Ratio Computation Period. The term Transaction of Interest Loss Ratio Computation Period means—
(A) The most recent ten taxable years of a Captive; or
(B) In the case of a Captive that has been in existence for less than ten taxable years, all taxable year(s) of the Captive.
(iii) Rules for computation periods. The rules provided in § 1.6011-10(b)(2)(iii) and (iv) for computation periods apply for purposes of this paragraph (b)(2).
(3) Contract. Contract has the same meaning as provided in § 1.6011-10(b)(3).
(4) Insured. Insured has the same meaning as provided in § 1.6011-10(b)(4).
(5) Intermediary. Intermediary has the same meaning as provided in § 1.6011-10(b)(5).
(6) Owner. Owner has the same meaning as provided in § 1.6011-10(b)(6).
(7) Recipient. Recipient has the same meaning as provided in § 1.6011-10(b)(7).
(8) Related. Related has the same meaning as provided in § 1.6011-10(b)(8).
(9) Seller. Seller has the same meaning as provided in § 1.6011-10(b)(9).
(10) Seller's Captive. Seller's Captive has the same meaning as provided in § 1.6011-10(b)(10).
(11) Substantially Similar. Substantially Similar has the same meaning as provided in § 1.6011-10(b)(11).
(12) Unrelated Customers. Unrelated Customers has the same meaning as provided in § 1.6011-10(b)(12).
(c) Transaction description. A transaction is described in this paragraph (c) if the transaction is described in paragraph (c)(1) of this section, paragraph (c)(2) of this section, or both.
(1) The transaction involves a Captive that, at any time during the Captive's Financing Computation Period, directly or indirectly, engages in a transaction described in paragraph (c)(1)(i) of this section, taking into account paragraph (c)(1)(ii) of this section.
(i) The Captive made available as financing or otherwise conveyed or agreed to make available or convey to a Recipient, in a transaction that did not result in taxable income or gain to the Recipient, in whole or in part, any portion of the amounts received under a Contract, such as through a guarantee, a loan, or other transfer of Captive's capital, or made such financings or conveyances prior to the Financing Computation Period that remain outstanding or in effect at any point in the taxable year for which disclosure is required.
(ii) Any amounts that a Captive made available as financing or otherwise conveyed or agreed to make available or convey to a Recipient are presumed to be portions of the amounts received under a Contract to the extent such amounts, when made available or conveyed are in excess of a Captive's cumulative after-tax net investment earnings minus any outstanding financings or conveyances.
(2) The transaction involves a Captive for which the amount described in paragraph (c)(2)(i) of this section is less than 60 percent of the amount described in paragraph (c)(2)(ii) of this section.
(i) The amount of liabilities incurred for insured losses and claim administration expenses during the Transaction of Interest Loss Ratio Computation Period.
(ii) The amount equal to premiums earned by the Captive during the Transaction of Interest Loss Ratio Computation Period, less policyholder dividends paid by the Captive during the Transaction of Interest Loss Ratio Computation Period.
(d) Exceptions. A transaction described in paragraph (c) of this section is not identified as a transaction of interest for purposes of this section and § 1.6011-4(b)(6) if the transaction:
(1) Is described in § 1.6011-10(d)(1);
(2) Is described in § 1.6011-10(d)(2); or
(3) Is identified as a listed transaction in § 1.6011-10(a), in which case the transaction must be reported as a listed transaction under § 1.6011-10.
(e) Bright-line rules. A transaction is not considered Substantially Similar (as defined in paragraph (b)(11) of this section) to the transaction of interest identified in this section if the transaction:
(1) Does not involve an entity that has elected under section 831(b) of the Internal Revenue Code (Code) to include in taxable income only taxable investment income (defined in section 834 of the Code) in lieu of the tax imposed under section 831(a); or
(2) Involves a Captive for which the amount described in paragraph (c)(2)(i) of this section is 60 percent or more of the amount described in paragraph (c)(2)(ii) of this section.
(f) Special participation rules—(1) In general. Whether a taxpayer has participated in the transaction of interest identified in paragraph (a) of this section, including Substantially Similar transactions, will be determined under § 1.6011-4(c)(3)(i)(E). Participants include, but are not limited to, any Owner, Insured, Captive, or Intermediary with respect to the transaction whose tax return reflects tax consequences or a tax strategy identified in paragraph (a), except as otherwise provided in paragraphs (f)(2) and (3) of this section.
(2) Disclosure safe harbor for Owners. An Owner who, solely by reason of the Owner's direct or indirect ownership interest in an Insured, has participated in the transaction of interest described in this section will not be required to disclose participation in the transaction under section 6011(a), notwithstanding § 1.6011-4(c)(3), if the Owner receives acknowledgment, in writing or electronically, from the Insured that the Insured has or will comply with Insured's separate disclosure obligation under § 1.6011-4 with respect to the transaction and the Insured discloses the transaction in a timely manner. The acknowledgment can be a copy of the Form 8886, Reportable Transaction Disclosure Statement (or successor form), filed (or to be filed) by the Insured and must be received by the Owner prior to the time set forth in § 1.6011-4(e) in which the Owner would otherwise be required to provide disclosure.
(3) Disclosure safe harbor for taxpayers in transactions with revoked section 831(b) elections. If the Captive has revoked its section 831(b) election, taxpayers who participated in the transaction of interest with respect to that Captive, including any Insureds, Owners, and Intermediaries, will not be considered participants in the transaction under section 6011(a), notwithstanding § 1.6011-4(c)(3), for any taxable year in which the section 831(b) revocation is effective, provided that a successor Captive has not been established as described in paragraph (b)(2)(iii) of this section (referencing § 1.6011-10(b)(2)(iii) and (iv)).
(g) Disclosure requirements. Participants must provide the information required under § 1.6011-4(d) and the Instructions to Form 8886 (or successor form). For all participants, describing the transaction in sufficient detail includes, but is not limited to, describing on Form 8886 (or successor form) when, how, and from whom the participant became aware of the transaction, and how the participant participated in the transaction (for example, as an Insured, a Captive, or other participant). A Captive and an Insured must also provide the information required in § 1.6011-10(g)(2) and (3), respectively.
(h) Applicability date—(1) In general. This section identifies transactions that are the same as, or Substantially Similar to, the transaction identified in paragraph (a) of this section as transactions of interest for purposes of § 1.6011-4(b)(6) effective January 14, 2025, except as otherwise provided in this paragraph (h)(1). If, on or before the date prescribed for filing disclosure statements with the Office of Tax Shelter Analysis under § 1.6011-4(e), the Captive involved in the transaction has requested the consent of the Secretary to revoke its section 831(b) election, the transaction is not identified as a transaction of interest for purposes of this section and § 1.6011-4(b)(6) for participants with respect to that Captive for taxable years ending before January 1, 2026.
(2) Obligations of participants with respect to prior periods. Pursuant to § 1.6011-4(d) and (e), taxpayers who have filed a tax return (including an amended return) reflecting their participation in transactions described in paragraph (a) of this section prior to January 14, 2025, must disclose the transactions as required by § 1.6011-4(d) and (e) provided that the period of limitations for assessment of tax (as determined under section 6501 of the Code, including section 6501(c)) for any taxable year in which the taxpayer participated has not ended on or before January 14, 2025, except as otherwise provided in this paragraph (h)(2). Taxpayers who have finalized a settlement agreement with the Internal Revenue Service with respect to the transaction, in examination or litigation, will be treated as having made the disclosure for years subject to that agreement. Taxpayers who have filed a disclosure statement regarding their participation in the transaction with the Office of Tax Shelter Analysis pursuant to Notice 2016-66, 2016-47 I.R.B. 745, will be treated as having made the disclosure pursuant to the final regulations for the taxable years for which the taxpayer filed returns before January 14, 2025. If a taxpayer described in the preceding sentence participates in the Micro-captive Transaction of Interest in a taxable year for which the taxpayer files a return on or after January 14, 2025, the taxpayer must file a disclosure statement with the Office of Tax Shelter Analysis at the same time the taxpayer files their return for the first such taxable year.
(3) Obligations of material advisors with respect to prior periods. Material advisors defined in § 301.6111-3(b) of this chapter who have previously made a tax statement with respect to a transaction described in paragraph (a) of this section have disclosure and list maintenance obligations as described in §§ 301.6111-3 and 301.6112-1 of this chapter, respectively. Notwithstanding § 301.6111-3(b)(4)(i) and (iii) of this chapter, material advisors are required to disclose only if they have made a tax statement on or after the date that is six years before January 14, 2025. Material advisors that are uncertain whether the transaction they are required to disclose should be reported under this section or § 1.6011-10 should disclose under § 1.6011-10 and will not be required to disclose a second time if it is later determined that the transaction should have been disclosed under this section.
[T.D. 10029, 90 FR 3562, Jan. 14, 2025]