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SIIA Seeks Treasury Department Review of IRS 831(b) Captive Activities

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June 19, 2020

In a letter to US Treasury Secretary Steven Mnuchin and Russel Vought, acting director of the Office of Management and Budget, the Self-Insurance Institute of America (SIIA) has asked the Treasury Department to review activities of the Internal Revenue Service (IRS) related to 831(b) captive insurance companies.

In the letter, the SIIA requests that the IRS be directed to "more appropriately define captive guidance," while "more appropriately and effectively" collecting the appropriate information related to transactions under section 831(b) of the Internal Revenue Code "without hindering the recovery of the American businesses appropriately utilizing captive insurance to mitigate COVID-related risks."

The letter goes on to say that the IRS shouldn't treat businesses with captive insurance companies as "guilty before proven innocent."

"The fact that the Service issued and demanded duplicative data in the midst of a national pandemic at the threat of perjury is signal enough of the gross negligence and violation of due process being undertaken by the IRS in this instance," the letter, signed by Ryan C. Work, vice president of government relations at the SIIA, says. "These actions should be directed to cease."

Under section 831(b), small insurance companies can opt to be taxed only on their taxable investment income, with underwriting profits exempt from federal income tax. In recent years, such so-called "micro-captives" have been under increasing scrutiny by the IRS.

In its letter, the SIIA cites a May executive order (EO) by President Donald Trump titled "Regulatory Relief To Support Economic Recovery." The SIIA notes that the EO directs federal agencies to provide businesses relief from regulations that might hinder the economic recovery.

"SIIA and its members strongly believe that ongoing actions by the IRS against the captive insurance industry in general should be reviewed and considered for relief under the EO, as they pose both an undue financial burden and complexity on American small- and medium-sized businesses already reeling from COVID-19," the letter says.

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