The Captive Insurance Companies Association ("CICA"), a trade association representing the captive insurance industry, has issued a statement on section 831(b) companies with cautionary language: The traditional captive insurance company industry and CICA are extremely concerned about the misuse of small captives utilizing the IRC 831(b) election and the attendant publicity about "captives" being a tax avoidance device. Although there is nothing wrong with the utilization of the 831(b) election when a small captive insurance company is truly engaged in insuring the risk of its parent company/owner(s), the traditional captive insurance industry strongly opposes the utilization of small 831(b) captives primarily for tax sheltering purposes. In simple language, do 831(b)s right or don't do them at all!
IRS attacks captive insurance, how to get audited, 3577 views, 66 likes
ReplyDeletePublished on November 18, 2016
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IRS attacks captive insurance, how to get audited, 3577 views, 66 likes
ReplyDeletePublished on No why there is a need for additional insurance, the IRS will perceive d information gathering tool employed by the IRS to survey a large grouping of transactions to identify which arrangements fall within the transaction of interest scope should be listed and/or examined.
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Notice 2016-66 is very broad. Generally, the notice applies to transactions where: (i) the taxpayer owns directly or indirectly an interest in an active trade or business, (ii) the business enters into insurance contracts whereby an insurance company that has made an election under Code Section 831(b) (the microcaptive) insures or reinsures risks covered by the insurance contracts, (iii) the taxpayer, the insuring business, or persons related to either of them own 20% or more (by vote or value) of the microcaptive, and (iv) one of the following tests are met – (a) the microcaptive’ s combined losses and expenses over a prior five-year period are less than 70% of the net premiums earned, or (b) during the past five years, the captive used its assets to loan, guarantee, or otherwise help in any financing for the taxpayer, the insuring business, or any person related thereto.
Significantly, the new IRS notice requirement is triggered by objective requirements. Very importantly, no tax avoidance motive or intent is required for a transaction to be subject to the notice and the reporting obligations that flow therefrom. Accordingly, the IRS notice will require disclosure of countless 831(b) captive insurance arrangements that fulfill all the requirements of the Internal Revenue Code beyond a shadow of a doubt.