IRS Settles with Alta Holdings Co-Founder Over Microcaptive Insurance Arrangements
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., regarding his involvement in microcaptive insurance arrangements that the agency determined did not comply with federal tax law. Molnar has agreed to pay penalties related to the promotion of these insurance structures between 2005 and 2012.
The settlement 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 did not qualify as insurance for tax purposes due to a failure to properly distribute risk and the use of excessive premiums.
According to the IRS, 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. The structure, facilitated through related entities US Risk and Newport Re, did not meet the definition of insurance under federal tax rules, resulting in clients being unable to deduct associated payments on their tax returns.
The IRS has increased oversight of microcaptive arrangements in recent years, arguing that some versions are structured primarily to reduce tax liability. The agency has issued final regulations targeting these transactions and included them on its 2024 ‘Dirty Dozen’ list of potentially abusive tax schemes. Several court decisions have upheld the IRS’s position on the improper use of microcaptive structures, and the agency has stated it will continue enforcement efforts involving promoters, advisers, and participants engaged in such arrangements.
