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
  IRS Building

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
  Tax Key

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
  Court Ruling Gavel

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
  Closed Sign

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
  Internal Revenue Service

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
  Insurance Risk Definition HT

"Insurance Risk" Defined by IRS

Internal Revenue Service ruling specifies types of coverage that do not qualify as insurance risk for determining tax-deductibility of premiums paid to a captive insurer.
March 07, 2016 Read More
  Tax Key

831(b) Captive Insurance Legislation Recently Passed: What Happens Next?

Because changes in recently approved legislation amending section 831(b) of the Internal Revenue Code (IRC) do not take effect until 2017, those who the changes affect "have time to get comfortable with the changes and can relax a little," according to Fred Turner, American Bar Association (ABA) Business Law Section Captive Insurance Committee vice-chair and founder of Active Captive Management.
December 23, 2015 Read More
  Internal Revenue Service

Anticipating an IRS 831(b) Captive Tax Audit

Two recent captive insurance educational opportunities collectively provided participants with some excellent insights on best practices for captives formed for risk management purposes that seek 831(b) tax status and how the Internal Revenue Service (IRS) is attacking what it believes is abusive use of an 831(b) tax structure.
November 18, 2015 Read More
  Kitchen Sink

Captive-Related IRS Analysis: Everything but the Kitchen Sink

On August 14, 2015, the Internal Revenue Service (IRS) released Chief Counsel Advice (CCA) 201533011, in which the IRS determined that the excess loss insurance contracts at issue do not qualify as insurance for US federal income tax purposes. The CCA is the latest indication of the IRS's position on the ongoing issue of what is insurance and continues the IRS's reliance on the common sense insurance prong of the test for insurance to bolster its conclusions on the other prongs of the test.
August 26, 2015 Read More
  Tax Key

Captive Insurance Tax Clarification Bill Topic of Video

A new A.M.BestTV video program takes a closer look at Senate Bill 1561, the Captive Insurers Clarification Act, which was recently introduced by Sen. Patrick Leahy (D-VT) and Sen. Lindsey Graham (R-SC) and is intended to clarify whether independent procurement taxes on insurance purchased from a captive must be paid to the insurer’s home state and to the captive’s domicile.
June 30, 2015 Read More
  Signing Forms

Deadline Imminent for Response to Commerce Department Survey

June 26, 2015 Read More
  US Capital Dome

The Captive Clarification Act Reintroduced in US Senate

S.B. 1561, the Captive Insurers Clarification Act, was introduced by Vermont Senator Patrick Leahy and Senator Lindsey Graham and referred to the Senate Banking, Housing and Urban Affairs Committee.
June 25, 2015 Read More
  American Courtroom Interior

Validus Court Holds FET Not Applicable to Foreign Reinsurance

Validus holding that federal excise tax (FET) does not apply to foreign reinsurance transactions is affirmed by the U.S. Court of Appeals for the District of Columbia Circuit.
May 27, 2015 Read More
  Tax Key

Federal Reinsurance Tax Proposal Opposition Expressed

The Laffer Center, the Tax Foundation, and the Captive Insurance Companies Association (CICA) have expressed their opposition to a budget proposal that would eliminate the deduction for reinsurance premiums paid to foreign affiliates by U.S.-based, foreign-owned companies.
May 20, 2015 Read More
  Tax Rule Book

CICA Objects to IRS Proposed Definition of “Active Conduct”

The Captive Insurance Companies Association (CICA) has submitted a response to the Internal Revenue Service (IRS) regarding RIN 1545-BM69 – Exception from Passive Income for Certain Foreign Companies. The response objects to the proposed definition of “active conduct” and requests a public hearing.
May 12, 2015 Read More
  Currency Relationships

IRS Says Currency Fluctuation Cover Is Not Insurance for Tax Purposes

The Internal Revenue Service has concluded in CCA 201511021 that currency fluctuation covers are not insurance for tax purposes.
April 06, 2015 Read More
  Tax Court Decision

Healthmark Case Changes Brother-Sister Captive Tax Treatment

Captive insurance involving single-member limited liability companies may now qualify as insurance for tax purposes due to a recent decision in the Healthmark case.
April 06, 2015 Read More
  2015 CICA Entrance

Why Captives Should Care about OECD Actions Topic of CICA Panel

How captives are affected by the Organization for Economic Cooperation and Development (OECD) and G-20 efforts to eradicate base erosion and profit shifting (BEPS) by multinational corporations was the topic of a panel discussion at the Captive Insurance Companies Association (CICA) 2015 International Conference, held March 8-10 in Orlando.
March 11, 2015 Read More
  Ron Walling

Captives Are a Legitimate Tax Structure—Are They Dirty?

Whether captive insurers are making 831(b) elections as "dirty" as the Internal Revenue Service (IRS) thinks is the issue Robert J. Walling III, principal at Pinnacle Actuarial Resources, Inc., addressed in a recent blog post. It is reprinted here with permission.
February 18, 2015 Read More