On June 18, 2018, the US Tax Court issued its opinion in Reserve Mechanical Corp. v. Commissioner, holding for the IRS. Eversheds Sutherland says that the facts of the case appear substantially similar to LTR 201609008, issued by the IRS in 2016.
In a new opinion, the US tax court found that Reserve Mechanical Corp., a captive insurer incorporated in Anguilla and owned by Peak Casualty Holdings, LLC, failed to qualify as an insurance company for federal income tax purposes under Internal Revenue Code section 501(c)(15).
The end of 2017 delivered uncertain tidings concerning what effect the Tax Cuts and Jobs Act would have on the captive insurance industry. While the law affects larger captive insurers, changes are less significant for smaller captives. Management Services International provides its view on the tax law and small captive insurance companies.
The Base Erosion Anti-Abuse Tax imposes a 10 percent minimum tax on corporate US taxpayers. Premium payments made by US taxpayers to their non-US captive insurers and loss payments made by US captive insurers to their non-US insureds are among the amounts characterized as base erosion payments.
In response to the Tax Cuts and Jobs Act signed into law by President Donald Trump, RIMS has published a "Legislative Review" on the law's Base Erosion and Anti-Abuse Tax provisions, which will levy a 10 percent tax on transactions with foreign affiliates and impact some insurance and reinsurance programs.