Captive insurance, IRS dirty dozen, need help? 6754 views, 65 likes Edit article Published on September 5, 2017 LikedUnlikeCaptive insurance, IRS dirty dozen, need help? 6754 views, 65 likes1Comment1ShareShare Captive insurance, IRS dirty dozen, need help? 6754 views, 65 likes5 Lance Wallach Lance Wallach Business Owner at National Offices of Lance Wallach Captive insurance can be great but it can also get you audited or worse. Small captives like 631 captives are on the IRS dirty dozen list and you will get audited. You also have to report on yourself under IRS 6707a or face a large fine. I have been warning about this at conventions and in the press for years.
In the past two years, the IRS has continued its oversight of the use and tax implications of captive insurance companies which make a “small captive” election pursuant to 26 U.S.C. §831(b). This election allows qualified captives to accept up to $2.2M in annual premiums free from federal income tax, instead only paying taxes on their investment income. Such “small captives” have come under IRS inquiry due to their rapid expansion and potential for tax-sheltering abuse.
Recently, the U.S. Tax Court recently decided Avrahami v. Commissioner, 149 T.C. No. 7 (2017). This matter came before the Tax Court after the IRS determined that two taxpayers, Benyamin and Orna Avrahami, could not deduct the premiums paid to a captive insurance company which provided them with terrorism insurance on their jewelry stores in Arizona. Following that decision, the Avrahamis brought suit in the tax court in order to have these premiums declared as deductions.
The Case
The IRS defended its decision and based its response on an analysis of both the formation and function of the captive. The IRS claimed that during the formation of the captive, the taxpayers made no effort to obtain terrorism insurance from the commercial market, demonstrated no concerns about their growing insurance cost (which had increased sixteen f a captive’s operation would support an organization’s ability to take valid tax deductions for premiums paid to its affiliated captive insurer.
Captive insurance, IRS dirty dozen, need help? 6754 views, 65 likes
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Published on September 5, 2017
LikedUnlikeCaptive insurance, IRS dirty dozen, need help? 6754 views, 65 likes1Comment1ShareShare Captive insurance, IRS dirty dozen, need help? 6754 views, 65 likes5
Lance Wallach
Lance Wallach
Business Owner at National Offices of Lance Wallach
Captive insurance can be great but it can also get you audited or worse. Small captives like 631 captives are on the IRS dirty dozen list and you will get audited. You also have to report on yourself under IRS 6707a or face a large fine. I have been warning about this at conventions and in the press for years.
In the past two years, the IRS has continued its oversight of the use and tax implications of captive insurance companies which make a “small captive” election pursuant to 26 U.S.C. §831(b). This election allows qualified captives to accept up to $2.2M in annual premiums free from federal income tax, instead only paying taxes on their investment income. Such “small captives” have come under IRS inquiry due to their rapid expansion and potential for tax-sheltering abuse.
Recently, the U.S. Tax Court recently decided Avrahami v. Commissioner, 149 T.C. No. 7 (2017). This matter came before the Tax Court after the IRS determined that two taxpayers, Benyamin and Orna Avrahami, could not deduct the premiums paid to a captive insurance company which provided them with terrorism insurance on their jewelry stores in Arizona. Following that decision, the Avrahamis brought suit in the tax court in order to have these premiums declared as deductions.
The Case
The IRS defended its decision and based its response on an analysis of both the formation and function of the captive. The IRS claimed that during the formation of the captive, the taxpayers made no effort to obtain terrorism insurance from the commercial market, demonstrated no concerns about their growing insurance cost (which had increased sixteen f a captive’s operation would support an organization’s ability to take valid tax deductions for premiums paid to its affiliated captive insurer.