IRS Proposed Regulation 2015-0015-0001 – “Exception from Passive Income for Certain Foreign Insurance Companies”.  This seemingly esoteric convoluted proposed regulation was drafted to close a “loophole” that allows hedge fund managers to limit their personal income tax bills by routing investments through insurance companies in low-tax jurisdictions.  However, the wording of the proposed regulation included language that would define “active conduct” of an insurance business to exclude the use of the officers and employees of related entities and independent contractors.

After consulting with the Joint CICA/VCIA Tax Advisory Committee, CICA has filed comments with the IRS objecting to proposed regulation as overly broad, with a specific objection to any language that would impair the use of employees of related entities and independent contractors – which is exactly how most captive insurance companies operate.

A copy of CICA’s Comment Letter can be found here.