Aggressive IRS Auditing Dampens Appetite for Captive Insurance

Senior Policy Advisor Beth Vecchioli was featured in a Bloomberg Tax article addressing the IRS' position that micro-captive insurance elections present a significant risk of tax avoidance, as well as the legal challenges to the insurance reporting rule in federal court. The article highlights that ongoing IRS audits and a series of court rulings declaring micro-captive arrangements tax abusive may deter business owners from establishing small captive insurance companies. Ms. Vecchioli noted that most taxpayers are not primarily motivated by tax benefits when choosing the 831(b) election; instead, escalating costs in the commercial insurance market are a major factor driving the formation of captive entities.

If you're a company that has good loss control, and you feel like you can save premium dollars because you have very good loss history on your claims, then it's appealing to form your own captive because then you can have more affordable insurance rates," she said.

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