Taxation

Maryland lawmakers are considering legislation to temporarily suspend premium receipts taxes on certain captive insurance arrangements. The bill includes retroactive relief, requires a study on captive taxation and regulation, and sets a sunset on the provisions, reflecting a broader review of how captive insurance is treated at the state level. Read More

Premiums paid to a captive insurance company are deductible for federal income tax purposes only if the arrangement qualifies as true insurance. This requires risk transfer, risk distribution, and alignment with common insurance principles, as recognized by the Internal Revenue Service and courts. The structure and underlying risk profile ultimately determine deductibility. Read More

In a recent issue of "Captive Insurance Company Reports," Kristen Lawler of Crowe LLP examines the Tax Court's CFM decision and its implications for captive insurance qualification. The analysis highlights the importance of operational discipline, governance, and the "commonly accepted notions" standard in federal tax determinations. Read More

Under federal tax law, insurance companies are allowed to take a current deduction for unpaid losses, which is an expense that is paid over time. Without the deduction for unpaid losses, the tax code would be exceedingly burdensome for insurance companies. Read More

The Tax Court's reviewed opinion in "Patel v. Commissioner" applies the codified economic substance doctrine to micro-captive arrangements and sustains both the 20 percent noneconomic substance penalty and the 40 percent enhanced penalty for inadequate disclosure. The court outlined missing facts in the taxpayers' returns and declined to consider arguments raised too late. Read More