The Internal Revenue Service (IRS) has reached a settlement with Bruce Molnar, co-founder and majority owner of Alta Holdings, U.S. Risk Associates Insurance Co. Ltd., and Newport Re Inc., over his involvement in microcaptive insurance arrangements the agency determined did not comply with federal tax law.
The IRS did not disclose the financial terms of the settlement. A spokesperson for the agency declined to provide additional details beyond a public statement announcing the resolution.
Molnar agreed to pay penalties related to the promotion of microcaptive insurance structures between 2005 and 2012.
The matter stems from a 2019 US Tax Court ruling that disallowed tax deductions claimed by Syzygy Insurance Co., a captive insurance company affiliated with Highland Tank & Manufacturing Co., a Pennsylvania-based manufacturer.
The court found that the arrangement, which fell under the microcaptive provision, did not qualify as insurance for tax purposes. It cited a failure to properly distribute risk and the use of what the court viewed as excessive premiums.
In its statement, the IRS said Molnar, through his role at Alta, facilitated a program in which clients entered into contracts treated as insurance and created entities considered by participants to be captive insurers.
According to the agency, the structure, facilitated through related entities US Risk and Newport Re, did not meet the definition of insurance under federal tax rules. As a result, clients were not permitted to deduct the associated payments on their tax returns.
The IRS has increased oversight of microcaptive arrangements in recent years, arguing that some versions are structured in a way that primarily serves to reduce tax liability. The agency has issued final regulations targeting these types of transactions and included them on its 2024 “Dirty Dozen” list of tax schemes it considers potentially abusive.
Several court decisions in favor of the IRS have upheld the agency’s position on improper use of microcaptive structures. The IRS has stated it will continue enforcement efforts involving promoters, advisers and participants engaged in such arrangements.
