Captive and Easements

Captive insurance is an alternative to self-insurance in which a parent group or groups create a licensed insurance company to provide coverage for itself. The main purpose of doing so is to avoid using traditional commercial insurance companies, which have volatile pricing and may not meet the specific needs of the company. By creating their own insurance company, the parent company can reduce their costs, insure difficult risks, have direct access to reinsurance markets, and increase cash flow. When a company creates a captive they are indirectly able to evaluate the risks of subsidiaries, write policies, set premiums and ultimately either return unused funds in the form of profits, or invest them for future claim payouts. Captive insurance companies sometimes insure the risks of the group's customers. This is an alternative form of risk management that is becoming a more practical and popular through which companies can protect themselves financially while having more control over how they are insured. Potentially Abusive Arrangements A. Syndicated Conservation Easements According to the IRS, in syndicated conservation easements promoters take a provision of tax law for conservation easements and twist it through using inflated appraisals of undeveloped land and partnerships. Once again per the IRS, these abusive arrangements are designed to game the system and generate inflated and unwarranted tax deductions, often by using inflated appraisals of undeveloped land and partnerships devoid of a legitimate business purpose. For more information regarding the IRS’s stance on conservation easements, see Josh Sage’s articles discussing recent conservation easement attacks by the IRS and the December 2019 Tax Court case TOT Property Holdings LLC v. Comm’r. B. Micro-Captive Arrangements Per the IRS, in abusive “micro-captive” structures, promoters, accountants, or wealth planners persuade owners of closely held entities to participate in schemes that lack many of the attributes of insurance. For example, coverages may “insure” implausible risks, fail to match genuine business needs, or duplicate the taxpayer’s commercial coverages. But the “premiums” paid under these arrangements are often excessive and used to skirt tax law. Recently, the IRS has stepped up enforcement against a variation using potentially abusive offshore captive insurance companies domiciled in Puerto Rico and elsewhere. There are many variations of how captives can be set up, which can be broken into two categories. The first category is known as non-sponsored in which the company is the creator and beneficiary. Within that category the most common are single-parent or “pure”, group and association. The second category is sponsored in which the captive is owned and controlled by another company that allows other companies to “rent” insurance. This category includes Protected Cell Captive Insurers and Rental Captives. Want to get all your money back, and or beat the IRS? As an expert witness Lance Wallach has never lost a case. Lance Wallach receives hundreds of calls annually to help people fight the IRS and get their money back from the promoters of these scams. Google Lance Wallach and your advisor, who do you trust? 516-236-8440 Wallachinc@gmail.com https://captiveinsuranceaudits.com/