In this video, P. Bruce Wright of Eversheds Sutherland (US) LLP addresses the special taxation case of micro-captive insurance companies. Section 831(b) of the Internal Revenue Code applies to insurance companies with less than $2.2 million in net premium. An 831(b) company does not need to pay taxes on its underwriting income and does not take deductions for losses. In short, the company (taxpayer) only pays taxes on its investment income. This said, in order for a micro-captive to take this tax deduction, the standard elements of risk transfer, common notions of insurance, and risk distribution still must occur.  Due to their small size, risk distribution from unrelated business or from a certain number of subsidiaries can be difficult for micro-captives to achieve. As a result, they often use risk pooling arrangements to achieve risk shifting, in the form of unrelated business, by exchanging their risk with others under varying contractual arrangements. With these arrangements in various contexts (speeches, information letter requests, and information document requests), the Internal Revenue Service has expressed concern with the nature/types of risks being written (not typical to the specific insured) and the presence of adequate risk transfer (specific concerns with pooling arrangements and limited obligations).