This article analyzes Internal Revenue Service (IRS) Notice 2025-24, which provides limited relief from penalties under section 6707A(a) and section 6707(a) of the Internal Revenue Code (Code) for participants and material advisors involved in certain micro-captive reportable transactions. This relief is specifically targeted towards those who failed to file timely disclosure statements related to transactions identified as listed transactions or transactions of interest after the initial filing of tax returns or the point at which an advisor became a material advisor. Understanding the scope and limitations of this notice is crucial for tax practitioners advising clients involved in micro-captive arrangements.

Penalty Being Waived

Notice 2025-24 provides a limited waiver of penalties under two distinct Code sections:

Section 6707A(a): This section imposes a penalty on any person who fails to include with any return or statement any information required to be disclosed under section 6011. The notice specifically waives this penalty for participants in Later Identified Micro-captive Listed Transactions and Later Identified Micro-captive Transactions of Interest who failed to file the disclosure statements required under section 6011 and § 1.6011-10(h)(2) or § 1.6011-11(h)(2) by the original due date of April 14, 2025.
Section 6707(a): This section imposes a penalty on material advisors who fail to file information required under section 6111. Notice 2025-24 waives this penalty for material advisors to certain micro-captive reportable transactions required under section 6111 and § 1.6011-10(h)(3) or § 1.6011-11(h)(3) who failed to file the disclosure statement with the Office of Tax Shelter Analysis (OTSA) by the original due date of April 30, 2025.

The transactions subject to this notice were identified as Micro-captive Listed Transactions or Micro-captive Transactions of Interest effective as of January 14, 2025, through final regulations (§§ 1.6011-10 and 1.6011-11). These regulations identified transactions that are the same as, or substantially similar to, certain micro-captive transactions as either listed transactions or transactions of interest.

Requirements to Obtain Relief

To qualify for the limited penalty waiver, both participants and material advisors must meet specific requirements:

Filing Deadline: The key requirement for obtaining relief under Notice 2025-24 is the timely filing of the required disclosure statement with OTSA by July 31, 2025.
- For participants, the disclosure statement must be completed in accordance with § 1.6011-4(d) and the Instructions to Form 8886, Reportable Transaction Disclosure Statement. This form is used by taxpayers to disclose their participation in reportable transactions.
- For material advisors, the disclosure statement must be completed in accordance with § 301.6111-3(d) and the instructions to Form 8918, Material Advisor Disclosure Statement. This form is used by material advisors to disclose information about reportable transactions.
Applicable Transactions: The penalty relief is limited to Later Identified Micro-captive Listed Transactions and Later Identified Micro-captive Transactions of Interest. These are transactions where the obligation to disclose arose after the filing of a taxpayer’s return (Participant Later Identified Transaction rule) or after the advisor became a material advisor (Material Advisor Later Identified Transaction rule) due to the transactions being identified as listed transactions or transactions of interest on January 14, 2025. This typically applies to participants who filed returns reflecting their participation in such transactions and for which the period of limitations for assessment of tax had not ended on or before January 14, 2025. For material advisors, it applies to those who made a tax statement on or after January 14, 2019.

Limitations of the Relief

It is critical to understand the limitations of the penalty relief provided by Notice 2025-24:

Limited Scope: The relief is specifically limited to penalties under sections 6707A(a) and 6707(a). It does not provide relief from any other penalties that may apply.
Initial Disclosure with Tax Return: The waiver does not apply to the penalty under section 6707A(a) for participants required to file a copy of their disclosure statement with OTSA at the same time the participant first files a disclosure statement by attaching it to the participant’s tax return pursuant to § 1.6011-4(e)(1). Taxpayers concerned about meeting this original due date can request an extension of their tax return filing date to obtain additional time.
Post-July 31, 2025 Disclosures: Disclosures required from participants and material advisors with respect to Micro-captive Listed Transactions and Micro-captive Transactions of Interest on or after July 31, 2025, remain due as otherwise set forth in § 1.6011-4(e) and § 301.6111-3(e), respectively. The extended deadline only applies to the initial disclosures triggered by the January 14, 2025, identification of these transactions.
Material Advisor List Maintenance: The notice does not modify any list maintenance and furnishment obligations of material advisors as set forth in section 6112 and § 301.6112-1. Material advisors must continue to comply with these separate requirements.
Settlement Agreements and Prior Disclosures: The Participant Later Identified Transaction rule, and thus this penalty relief, may not apply to taxpayers who have finalized a settlement agreement with the IRS. Additionally, for Micro-captive Transactions of Interest, the rule might not apply to participants who filed disclosure statements pursuant to Notice 2016-66.

Potential Benefits of Qualifying for Relief

The primary benefit for taxpayers and material advisors who qualify for the limited penalty waiver under Notice 2025-24 is the avoidance of potentially significant penalties under sections 6707A(a) and 6707(a). These penalties can be substantial and are imposed for failing to timely disclose participation in reportable transactions. By meeting the extended filing deadline of July 31, 2025, those who inadvertently missed the original deadlines due to the recent identification of these micro-captive transactions as listed transactions or transactions of interest can come into compliance without incurring these penalties. This provides a crucial window for those affected to fulfill their disclosure obligations and mitigate potential enforcement actions related to these specific penalties.

Conclusion

Notice 2025-24 offers targeted penalty relief for participants and material advisors involved in Later Identified Micro-captive Listed Transactions and Later Identified Micro-captive Transactions of Interest. While this provides a valuable opportunity to avoid penalties under sections 6707A(a) and 6707(a), it is essential for tax practitioners to carefully assess their clients’ situations to ensure they meet all the requirements for relief, particularly the July 31, 2025 filing deadline with OTSA. Furthermore, it is crucial to remember the limitations of this relief, especially regarding the initial disclosure with the tax return and ongoing disclosure obligations for future periods. Understanding these nuances will enable CPAs to effectively advise their clients on navigating these complex disclosure requirements.

Prepared with assistance from NotebookLM.