IRC 831(b) Small Captives After the PATH Act: Meeting New Diversification Requirements and Avoiding IRS Scrutiny

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

Conducted on Wednesday, July 19, 2017

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 small captive insurance companies are fully compliant with the Section 831(b) rules. The panelist will discuss the PATH Act’s changes in both tax benefits and compliance burdens to small captives and offer detailed guidance on structuring small captives to be fully compliant with Section 831(b) requirements.


The use of captive insurance companies, particularly Section 831(b) “small captives,” has recently come under increased IRS scrutiny. While Congress has explicitly recognized small captives as a legitimate form of risk protection, the IRS expressed concern that these vehicles are being used for reasons other than as legitimate insurance companies. For the third consecutive year, the IRS has placed Section 831(b) small captives on its 2017 “Dirty Dozen List of Tax Scams,” warning that certain small captives represent an “abuse involving a legitimate tax structure.”

More significantly, in November, 2016, the IRS issued Notice 2016-66, further detailing areas of concern with Section 831(b) small captives. The Notice established criteria under which certain captive insurance companies must report their 831(b) election as a “transaction of interest,” subject to additional reporting requirements, with steep penalties for noncompliance.

The PATH Act of 2015 made several changes to the interpretation of small captives under Section 831(b), which went into effect on Jan. 1, 2017. These provisions have all but guaranteed both that small captives will continue to be used and likely will increase in frequency, and that the IRS will step up its examinations of the small captive arrangements. The PATH Act increased the 831(b) deductible premium limit from $1.2 million to $2.2 million, which will allow small businesses to better manage their coverage and risk profiles.

Listen as our experienced panel discusses the history and flexibility of captive insurance companies and how the lessons learned from 60 years of captives can be used to effectively utilize captives to manage and reduce a company’s risk of IRS scrutiny.



  1. Recent cases
    1. Securitas
    2. Rent-a-Center
    3. RVI
    4. Legislative changes
  2. Dirty dozen listing and establishing business purpose
  3. Anti-avoidance law
    1. Substance over form
    2. Business purpose
    3. Economic substance
  4. IRS broad enforcement capabilities
  5. IRS Notice 2016-66
  6. Section 831(b) Captives as a “transaction of interest”


The panel will review these and other key issues:

  • Risk shifting and distribution
  • IRS enforcement areas in small captives, including excessive premiums and risk definition
  • PATH Act changes to 831(b) structuring
  • Diversification requirements and tests
  • Response to IRS challenges of 831(b) small captive structures


David B. Liptz, CPA
David B. Liptz, CPA
Liptz & Associates

With more than 25 years of experience, Mr. Liptz is considered an expert in the specialty niche of captive insurance....  |  Read More

J. Scot Kirkpatrick
J. Scot Kirkpatrick

Chamberlain Hrdlicka White Williams & Aughtry

As Chair of the firm’s Trusts and Estates Practice Group in Atlanta, Mr. Kirkpatrick's practice focuses...  |  Read More

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