The Internal Revenue Service (IRS) reached a settlement with Bruce Molnar, co-founder and majority owner of Alta Holdings, U.S. Risk Associates Insurance, and Newport Re, for his role in facilitating microcaptive insurance arrangements that violated federal tax law.
Molnar paid penalties for promoting microcaptive insurance structures between 2005 and 2012.
The IRS did not disclose the specific penalties and declined to provide further comment beyond the public release announcing the settlement.
The case involved Syzygy Insurance Co., which operated under an 831(b) microcaptive arrangement.
In 2019, the U.S. Tax Court ruled that Syzygy’s arrangement failed to qualify as insurance under federal tax law. Judge Robert Ruwe found that the structure did not involve genuine insurance transactions, charged excessive premiums, and did not sufficiently distribute risk.
The decision disallowed the tax deductions claimed by Syzygy in connection with its arrangement with Highland Tank & Manufacturing Co., a Pennsylvania-based manufacturer of steel tanks.
The IRS stated that Molnar, acting as an officer of Alta, developed and marketed a program through which clients entered into contracts they classified as insurance.
These contracts involved the creation of new entities, which clients treated as captive insurance companies. The program was facilitated through Alta’s related firms, U.S. Risk and Newport Re.
According to the IRS, the structure did not qualify as insurance for federal tax purposes, and therefore, Alta’s clients were not permitted to deduct payments made under the contracts to their affiliated captive insurance companies.
Molnar, in his role as an officer of Alta, organized and sold a program using contracts their clients treated as insurance and creating new entities that they treated as captive insurance companies.
“Alta’s program, facilitated through its related entities U.S. Risk and Newport Re, was not insurance for federal tax purposes. Accordingly, Alta’s client could not properly deduct amounts paid for the purported insurance contracts to its related captive insurance company,” the IRS said
As part of its enforcement efforts, the IRS finalized regulations related to microcaptive “listed transactions” and “transactions of interest.” The agency confirmed its ongoing commitment to pursue managers, advisers, and participants involved in arrangements that do not meet federal standards.
