Taxation

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"Notice 2016–66 Remains Intact" as Court Dismisses CIC and Ryan Lawsuit

On November 2, 2017, just over 1 year to the day after the Internal Revenue Service (IRS) issued Notice 2016–66, Judge Travis R. McDonough dismissed the CIC Services, LLC, and Ryan, LLC, lawsuit that sought to enjoin the IRS from enforcing the notice.
November 08, 2017 Read More
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Eversheds Sutherland Observations on the Unified Tax Framework

Eversheds Sutherland provides its observations on the Republican unified tax framework. The framework is intended to serve as a "template" for the tax-writing committees, the House Ways and Means Committee, and the Senate Finance Committee to draft tax reform legislation.
October 04, 2017 Read More
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A Checklist for 831(b) Captives in Light of the Avrahami Tax Case

This 5-part checklist lays out a set of fundamental policies and practices 831(b) captives should follow. While the Avrahami 831(b) captive tax case may have been unique, owners need to be following essential protocols. In doing so, they are much less likely to find themselves the subject of an IRS audit.
September 27, 2017 Read More
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Tom Jones Finds Taxpayer-Positive Interpretation of "Avrahami" Decision

While the US Tax Court's "Avrahami" decision qualifies as a taxpayer loss, Tom Jones of McDermott Will & Emery finds positive elements to the decision. He says along the larger continuum of tax concerns relating to captives, the decision provides further clarity and should benefit larger captives.
August 31, 2017 Read More
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Lessons Learned from the "Avrahami" Case

Much has been shared, and many lessons can be learned from "Avrahami v. Comm'r" and "Feedback Ins. Co., Ltd. v. Comm'r," 149 T.C. 7 (2017). Jeremy and Richard Colombik provide their take on the lessons learned from the case.
August 30, 2017 Read More
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Court Concludes Tax Elections Invalid in Avrahami and Feedback Decision

On August 21, 2017, the US Tax Court decided two companion cases, Avrahami v. Commissioner and Feedback Insurance Company, Ltd., v. Commissioner, 149 T.C. No. 7, which involved issues around the formation and operation of a captive in Saint Kitts and elections under Internal Revenue Code sections 953(d) and 831(b).
August 22, 2017 Read More
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What Are the Financial Benefits of a Deductible Reimbursement Policy?

An operating company may achieve immediate financial benefits by using a captive insurer to issue a deductible reimbursement policy for its high deductible retentions. The tax implications for reimbursement policies for high deductibles are explained in this video by Martin Eveleigh of Atlas Insurance Management.
August 09, 2017 Read More
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IRA Tax Ruling Favors Captive Insurance

Management Services International (MSI) recently analyzed the "Summa Holdings, Inc. v. Comm'r" case decided and filed in February. In its analysis, MSI asks us to consider if this individual retirement account (IRA) tax ruling has favorable implications for the captive insurance industry and moves to the conclusion that the answer is affirmative.
June 26, 2017 Read More
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What Is a Reciprocal Insurance Company, and How Is It Taxed?

A reciprocal insurance company is an arrangement through which mutual promises of the participants are exchanged with respect to their insurance risks. While not a separately incorporated company, it is characterized as an insurance company for federal tax purposes.
March 01, 2017 Read More
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Direct Procurement Taxes: A Primer for Captives

Direct procurement taxes, also known as self-procurement taxes, are imposed by many states when an insured purchases insurance from an insurer not licensed in the state. These taxes can drive up the cost associated with buying insurance from a captive. This article is a primer on direct procurement taxes and how they operate.
February 22, 2017 Read More
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Captives Once Again Make the IRS "Dirty Dozen" List

For the third consecutive year, what it calls "abusive micro-captives" make an appearance on the IRS's annual "Dirty Dozen" list of tax scams in 2017. This article points out some important distinctions in the messaging around the IRS's 2017 announcement as compared to last year.
February 20, 2017 Read More
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The Basics of the 831(b) Election for Captives

Section 831(b) of the Internal Revenue Code may be elected by qualifying captives to exempt the captive insurer's underwriting profits from federal income tax. This article discusses the prerequisites that must be met as well as the transactions of interest reporting requirements.
January 25, 2017 Read More
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What Is FATCA, and How Do Captives Handle It?

This article discusses the Foreign Account Tax Compliance Act (FATCA) and how FATCA's requirements affect captives. FATCA's provisions operate to encourage compliance with US information reporting requirements by imposing a withholding tax on those that fail to comply.
January 18, 2017 Read More
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Taxation of Single-Parent Captives: A Basic Guide

One common captive structure is an insurance company owned by a single US corporation (a "single-parent captive"), which insures the risks of its parent and/or brother/sister companies. In some cases, single-parent captives cover risks of third parties as well as related party risk. The US federal income tax treatment of a single-parent captive and its owner depends in part on whose risk the captive insures and on whether the captive is a US company or a non-US company. This article summarizes the basic tax rules applicable to single-parent captives and their owners in various situations.
January 12, 2017 Read More
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When Are Premiums Paid to a Captive Insurance Company Deductible for Federal Income Tax Purposes?

Generally, premiums paid for insurance are deductible for federal income tax purposes in the year paid if the policy is an annual policy and are amortized over the policy period for a multiyear policy. In addressing the question of when premiums paid to a captive insurance company are deductible for federal income tax purposes, the key determination is whether the coverage provided by the captive will be respected as insurance for federal income tax purposes. A number of factors need to be taken into account when making that determination.
January 04, 2017 Read More
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IRS 70 Percent Loss Ratio for 831(b) Captive Insurers—Reasonable?

One of the sections in recent Internal Revenue Service (IRS) Notice 2016-66 that may be of concern to all captives, as well as commercial insurers, is the implication that an 831(b) captive with a loss and loss adjustment expense (LAE) ratio of less than 70 percent may not be an “insurance arrangement.”
November 10, 2016 Read More
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Disclosure of 831(b) Transactions of Interest Required by IRS in Notice 2016-66

IRS declares 831(b) captives as transactions of interest requiring specified information disclosure in Notice 2016-66.
November 03, 2016 Read More
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Court Ruled ERISA Does Not Preempt the Michigan Healthcare Claims Tax

The Health Insurance Claims Assessment Act (Michigan Act) that imposed a .75 percent tax on all paid healthcare claims for Michigan self-insureds and other employers has been upheld by the 6th U.S. Circuit Court of Appeals in Cincinnati.
July 12, 2016 Read More
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Surplus Lines Taxation: NIMA Board Votes To Dissolve Organization

An insurer's home state now has exclusive authority over the taxation, regulation, and licensing of nonadmitted insurers and reinsurers, the "Westmont Wire," published by Westmont Associates, Inc., reported on May 5, 2016.
May 09, 2016 Read More
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Captive Insurance Industry Has Source for Understanding IRS Economic Family Theory Argument

Those who are interested in understanding the Internal Revenue Service (IRS) economic family theory and taking a deeper dive into this area of the law may want to check out blog posts by F. Hale Stewart, JD, LLM, and Beckett G. Cantley, JD, LLM, coauthors of a book titled "U.S. Captive Insurance Law," in its second edition.
April 04, 2016 Read More