Captive Insurance

Micro-captive insurance companies are as the name implies, captive insurance arrangements where a taxpayer decides to self-insure their own risks.[2] Without going into detail on the taxability of insurance companies, Section 831 of the Code provides for taxation of insurance companies other than life insurance companies. A key component of qualifying to be taxed pursuant to Section 831 of the Code requires being an insurance company. Breaking some barriers to entry for smaller taxpayers and giving them a potentially tax-advantageous manner in which to self-insure, we have Section 831(b), allowing micro-captives. Effectively, a micro-captive, under Section 831(b) is a captive qualifying to be taxed as a U.S. insurance company which may pay tax on its investment income only in any year its total written premium amounts are under a stated threshold, $2.2 million. Effectively a taxpayer can pay its insurance premiums to an affiliate entity, deduct the premium, subsequently not recognize the premium receipt by the insurance company as taxable income, and then only pay tax on the investment income and subsequent dividend. Unsurprisingly, there were some bad actors out there peddling a medley of arrangements, some of which not constituting insurance, others pitching unnecessary insurance (think volcano insurance) for the sake of banked and untaxed premiums. Need help fighting the IRS? Contact Lance Wallach and his team of experts for all your tax questions. As an expert witness, Mr Wallach has never lost a case. 516-236-8440 Wallachinc@gmail.com