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!
ReplyDeleteSection 79 Plans
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INTRO
TAX IMPLICATIONS FOR NON-DISCRIMINATORY EMPLOYER-PAID LIFE INSURANCE COVERAGE THAT EXCEEDS $50,000
DETERMINING ‘COST’ OF COVERAGE
CARRIED DIRECTLY OR INDIRECTLY BY THE EMPLOYER; THE ‘STRADDLE RULE’
AVOIDING EMPLOYER-CARRIED POLICIES
IMPACT OF INSURERS’ RATE CHANGES
PLAN DESIGN TO AVOID LOSS OF $50,000 EXEMPTION
CALCULATING THE TAX CONSEQUENCES OF DISCRIMINATORY POLICIES
IRC SECTION 61 AND DEPENDENT GROUP LIFE
SECTION 79 PLANS SECTION 79 EXCEPTIONS IRC SECTION 79 SECTION 79 CHALLENGES THE CATCH EXPERT SERVICES ABOUT MR. WALLACH
SECTION 79 CHALLENGES
IRC Section 79 can pose real challenges for employers offering life insurance and voluntary benefits. Unless properly structured, employers may be required to calculate imputed income on employer paid basic life insurance in excess of $50,000 and
voluntary life insurance on employees or dependents. Employers must also be careful to design benefit plans that are non-discriminatory and do not favor key employees. Because of the Straddle Rule, employers must be careful to design benefit plans that make sure no employee pays more than the Table I rate for
coverage while another employee pays less than the Table I rate. The cost to the employer of calculating imputed income and making sure the benefits package remains in compliance with IRS requirements can be substantial. As a result, careful planning and design of an employee benefits package is vital. Insurance Point
will be happy to assist your organization in planning for your employee benefits to ensure that you and your employees avoid the pitfalls of the straddle rule.