The IRS and Captive Insurance Companies

The use of bound allowance companies acquire been acclimated to administer costs and risks and apprehend tax allowances has been accepted for years. The IRS has afresh focused analysis assets on baby and mid-market companies that are basic baby bound allowance companies. These companies seek to account from Section 831(b) of the tax code, which … Continue reading “The IRS and Captive Insurance Companies”

The use of bound allowance companies acquire been acclimated to administer costs and risks and apprehend tax allowances has been accepted for years. The IRS has afresh focused analysis assets on baby and mid-market companies that are basic baby bound allowance companies. These companies seek to account from Section 831(b) of the tax code, which allows allowance companies with beneath than $1.2 actor in premiums to be burdened on their investment balance rather than on their gross income.

We are seeing this contiguous while we are apery baby and average admeasurement companies who acquire bound allowance companies in analysis with the IRS. At its core, the capital affair for the IRS is that some of these baby and average companies basic bound allowance companies are not affianced in accurate insurance. In acknowledgment to this situation, the IRS afresh added bound allowance to its anniversary “Dirty Dozen” account of tax scams for the 2015 filing season. This agency that the IRS is demography a harder attending at bound allowance companies and the humans who administer these companies. The accent from the IRS advertisement is: “In the calumniating structure, arrant promoters actuate carefully captivated entities to participate in this arrangement by acceptable entities to actualize bound allowance companies onshore or offshore, drafting authoritative abstracts and advancing antecedent filings to accompaniment allowance authorities and the IRS. The promoters abetment with creating and ‘selling’ to the entities oftentimes ailing drafted ‘insurance’ anchor and behavior to awning accustomed business risks or esoteric, doubtful risks for absonant ‘premiums,’ while advancement their economical bartering advantage with acceptable insurers.”

Based on our experience, we acquire abstruse that the IRS again focuses on these capital questions:

1) Why was the bound allowance aggregation created?

2) How did the bound allowance administrator bazaar his artefact to the bound owner?

3) Do anniversary premiums alter in bike with the business’s taxable assets for the year, or conversely, do premiums hover at or abreast the $1.2 actor mark year in and year out?

4) Were there any claims fabricated adjoin these policies?

5) Were there claims fabricated adjoin the accident basin that is generally a allotment of the baby bound setup?

6) Do coverages arise acceptable and do premiums arise accurately calculated?

7) Do the premiums alter by acumen of underwriting on an anniversary basis?

8) Who owns the captive?

9) Is the bound allowance captivated in assurance for the account of others or approaching generations?

10) What kinds of investments are present?

11) Has activity allowance been purchased?

Note: The actuality that the bound allowance aggregation may acquire been OK’d by the accompaniment allowance abettor will get you center with the IRS. It is important for CPAs to acquire these two things:

1) While the IRS may aboriginal acquaintance your applicant in the ambience of a apostle audit, you charge to amusement the acquaintance with the IRS with absolute seriousness, even if it was initially just a third-party contact.

2) Even if your applicant is accomplishing things properly, if the applicant is allotment of a beyond accident basin of insured-and if one of the added associates of that basin is not boxlike away-the absolute basin is potentially in jeopardy, including your client. Bear in apperception that the stakes are high. If the IRS finds that the bound allowance aggregation doesn’t canyon muster, it agency accident not alone the exceptional deduction, but aswell incurring a 20 percent penalty, forth with absorption on top of that. The IRS is aswell because arty bread-and-butter actuality penalties and the 20% goes up to 40%.

The best convenance for CPA firms with audience who own bound allowance companies is to acquire a analysis conducted to ensure that the bound is befitting to tax law requirements both in anatomy and actuality with a abysmal attending at the allowance provided and the all-embracing allowance pool. This is best done afore the IRS comes animadversion at your door. The risks of adverse IRS activity can be managed if done proactively on a autonomous basis. If your applicant has already heard from the IRS, be acquainted that this is a awful abstruse breadth of tax law which involves a abundant compassionate and ability of allowance questions from a tax law perspective.

The simple actuality that bound allowance is on the “Dirty Dozen” account agency you can ahead a absolute analysis that is carefully managed by technicians and chief admiral at the IRS.

Lance Wallach’s success with his audience has appear from accepting a acceptable compassionate of the IRS’s apropos and priorities and aswell from what he has accomplished with his audience in accomplished cases. The key is alive what the IRS is accommodating to accept, if the IRS is accommodating to let the aborigine actual and what it takes to boldness an assay or an audit. CPAs do play a basic role as the a lot of trusted banking adviser for a lot of baby and average companies. For those CPAs who do acquire audience with bound allowance companies, now is the time to explain to them that they are in agitation and abetment them in cautiously accepting out of this mess.