We at alliantNational wanted to discuss some recent developments with regard to the captive insurance space – specifically, with respect to IRC § 831(b) micro-captives. However, let’s begin by walking through the definition of captive insurance.
When businesses can’t find affordable commercial insurance to cover their risks, they may establish an insurance company of their own to do it for them. This company is what we refer to as a captive insurance company. The Internal Revenue Code provides that captives earning less than $2.2 million in premiums may make an election to only have their investment income taxed. These are what are referred to as 831(b) captives or “micro-captives”.
Due to their increasing popularity and favorable tax treatment, our friends at the IRS have increased their scrutiny of micro-captives. Following the rulings in Avrahami v. C.I.R., Reserve Mechanical v. C.I.R., and most recently Syzygy Insurance v. C.I.R. (all U.S. Tax Court cases), taxpayers […]