From: Captive Intelligence

  • 65% loss ratio limit highlighted as particularly problematic for wider captive and commercial market
  • IRS has previous in attacking larger captives and could return post-831(b)
  • Expanded IRS insurance teams focused on micro-captives will need to be redirected in future
  • Captive industry encouraged to submit comments in response to proposed regulations

While Internal Revenue Service proposed regulations are focused on those taking the 831(b) tax election, some have warned the wider industry to be on red alert should the IRS broaden its scrutiny to larger captives.

The proposals, published on 10 April, have polarised opinion across America’s captive landscape, with some arguing the IRS is out to “destroy” the micro-captive industry, while others have branded it a “refreshing change”.

Views are also mixed as to whether the IRS is likely to take on larger captives, depending on the outcome of its fight against micro-captives.

The IRS does have a history of taking on larger captives in US Tax Court cases – Rent-A-Center, Inc v. Commissioner the most recent oft-cited case from 2014, with the decision favouring the taxpayer – and there are concerns the Service could refocus on larger captives again.

“They hate captures full stop, so anytime they get a win, they start applying it elsewhere,” Gary Osborne, vice president at Risk Partners, told Captive Intelligence.