On March 23, the President signed into law H.R. 1625. This legislation, also known as the “Consolidated Appropriations Act, 2018,” provides appropriations for the Federal Government through Sept. 30, 2018. However, H.R. 1625 also retroactively amends IRC § 831(b), by making changes to the diversification requirements imposed by the PATH Act of 2015.
The Path Act, in addition to increasing the limitation on premiums under 831(b), also required taxpayers to pass one of two tests. For ease, we will call these: 1) the 20 Percent Test or 2) the Ownership Test. However, questions arose regarding both of these tests – thus resulting in changes under H.R. 1625.
The 20 Percent Test
Under the 20 Percent Test, no more than 20 percent of the annual net written premiums of the captive insurance company can be attributable to one policyholder. For purposes of this test, brother/sister corporations are considered to be one policyholder.
Questions arose […]