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.
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.