Taxation
Captive Insurance and the CFM Decision: Operational Discipline Matters
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. Learn More
Why Do Insurance Companies Discount Unpaid Loss Reserves?
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. Learn More
Tax Court Addresses Economic Substance and Disclosure Penalties in Micro-Captive Case
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
Bermuda Proposes Tax Credits to Offset 15 Percent Corporate Levy for Insurers and Reinsurers
Bermuda's Ministry of Finance has proposed tax credits to accompany its 15 percent corporate tax, per Reinsurance Business. The credits include substance-based incentives for re/insurers tied to jobs and local spending. The initiative aims to support Bermuda’s insurance economy, which continues to expand across captives, life reinsurers, and legacy transactions. Read More
Drake Plastics Sues IRS over Captive Insurance Premium Dispute
Drake Plastics has filed a federal lawsuit against the Internal Revenue Service (IRS) over its disallowance of captive insurance premium deductions under Section 831(b). The company argues its insurance program is lawful and essential for managing risks traditional insurers won’t cover, while warning current IRS enforcement threatens small-business risk management strategies. Read More
Whiplash—Diverging Captive Insurance Rulings and Another IRS Victory
In this commentary, Matthew Queen examines the CFM Insurance Tax Court decision, which he says diverged from Swift v. Commissioner on risk distribution but ultimately sided with the Internal Revenue Service IRS. Mr. Queen discusses what he views as conflicting judicial interpretations of captive insurance and possible future legislative or court action. Read More
Fifth Circuit Holds for IRS in Swift Captive Insurance Case
The Fifth Circuit affirmed the Tax Court’s decision in Swift v. Commissioner, rejecting the captives' risk distribution arguments and finding flaws in the pooling arrangement. The court also upheld 20 percent Internal Revenue Service (IRS) penalties for negligence and substantial understatement under section 6662 of the Internal Revenue Code. Read More