IRC 831(b) Micro-Captives: Avoiding IRS Scrutiny, Diversification Requirements, Effective Transaction Structures

Recording of a 90-minute premium CLE/CPE video webinar with Q&A


Conducted on Thursday, February 25, 2021

Recorded event now available

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Program Materials

This CLE/CPE webinar will provide tax counsel, and advisers with practical tools and guidance to ensure that clients utilizing micro-captive insurance companies are fully compliant with IRC Section 831(b) rules to preserve legitimate tax deduction of premiums. The panel will discuss tax benefits and compliance burdens to micro-captives and offer detailed guidance on structuring micro-captives to be fully compliant with Section 831(b) requirements.

Description

The use of captive insurance companies, particularly Section 831(b) "micro-captives," has come under increased IRS scrutiny. The Service has explicitly recognized micro-captives as a legitimate form of risk protection but has expressed concern that these vehicles are being used more as a wealth transfer device than legitimate insurance.

Micro-captives will continue to be used and likely will increase in frequency and it's likely the IRS will step up its examinations of micro-captive arrangements. In 2020, the IRS sent thousands of "soft warning letters" to 831(b) risk-pooled captive owners. These letters provide notice that an IRS examination of micro-captives "may result in full disallowance of claimed micro-captive insurance deductions, inclusion of income by the captive entity, and imposition of applicable penalties."

Tax counsel and advisers must be aware of the challenging and potential pitfalls of structuring micro-captives.

Listen as our experienced panel discusses recent IRS examination initiatives for micro-captives and offers techniques for utilizing captives to manage and reduce a company's risk of IRS scrutiny.

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Outline

  1. Recent cases
  2. Anti-avoidance law
    1. Substance over form
    2. Business purpose
    3. Economic substance
  3. IRS broad enforcement capabilities

Benefits

The panel will review these and other important questions:

  • Risk shifting and distribution
  • IRS enforcement areas in micro-captives, including excessive premiums and risk definition
  • 831(b) structuring issues and complaince challenges
  • Diversification requirements and tests
  • Response to IRS challenges of 831(b) micro-captive structures

Faculty

Fine, Alan
Alan J. Fine, CPA, JD

Tax Partner and Insurance Industry Group Leader
Brown Smith Wallace

Mr. Fine specializes in the taxation of insurance companies. He has 24 years of tax experience and has worked closely...  |  Read More

Foate, David
David E. Foate

Attorney, Certified Specialist, Taxation Law
Gresham|Savage

Mr. Foate concentrates his practice on the tax complexities inherent in his clients’ US and international...  |  Read More

Warner, David
David J. Warner

Tax Attorney
Holtz, Slavett & Drabkin

Mr. Warner is a Tax Attorney and the Managing Attorney of the Orange County Office of Holtz, Slavett &...  |  Read More

Access Anytime, Anywhere

Strafford will process CLE credit for one person on each recording. CPE credit is not available on recordings. All formats include program handouts.

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