VOLUME 3; NUMBER 8
(Southern Pines)….Issues related to Section 831(b) captives continue to demand the attention of NCCIA and the captive community.
The Internal Revenue Service shows no sign of backing off on its attack on the captive insurance industry. Emboldened by its victory in the Avrahami Tax Court [Docket no. 17594-13] decision, the presiding Judge is attempting to leverage taxpayers to concede their position in the pending Wilson cases, thus negating their 831(b) elections. We do not yet know if the taxpayer petitioners will appeal the adverse ruling in Avrahami.
These cases are usually fact specific and the owners of the electing captive insurance company in Avrahami failed to address the “must” formalities of risk shifting and risk distribution, utilizing loan backs, dividend distributions, paid/backdated claims, illiquid investments and flawed actuarial projections for their personal benefit. In it’s decision the Tax Court disallowed claimed deductions for insurance premiums paid and the 831(b) election itself, thus exposing the taxpayers to substantial penalties.
In light of Avrahami, there has been concern in the industry that Treasury and the IRS might attempt to ramp up audits of micro-captives, using information obtained pursuant to Notice 2016-66 compliance filings, or even seek more restrictions on the use of the 831(b) election. The impact on North Carolina domiciled captives of enhanced audits or code changes was recently the subject of an article in Captive Insurance Times addressing a worst case scenario should there be a push to modify Section 831(b).
Clarifying those matters, NCCIA is not aware of any specific bill or section of any bill now pending in Congress that would either amend Section 831(b) by adding more restrictions or seek its out-right repeal. However, there are on-going discussions between the congressional leadership and the White House regarding potential tax reform, and how Congress might fund a major tax cut. Daily news articles are focused on the broader issues of tax reform but there is, only speculation on how to fund a reduction in tax rates. The Treasury has indicated the outlines of a tax bill will be made public this week. Timing of its release could be impacted by the resurrected debate in the Senate over the continuing debate on the health care delivery system. Whatever direction or course Treasury or Congress might take, all other captive domicile jurisdictions will be adversely impacted, not just North Carolina!
NCCIA will continue to inform its members and readers on its communications with the North Carolina Congressional delegation members and staffers about the disciplined growth of the captive industry, the favorable economic impact of the captive industry and the opportunity provided by the 831(b) election for small to mid-sized businesses and their insurers to manage their risks.
The Annual Conference of the NC Captive Insurance Association concluded in Charlotte on August 23rd after a successful three day run with some 200
captive insurance industry leaders in attendance. While no one won a car with a hole in one during the conference’s golf tournament, there were a number of firsts. The Association welcomed full coverage of the conference by CAPTIVE INSURANCE TIMES, an increase in concurrent breakout sessions to 15 from 10 in previous years and more outstanding opportunities for networking.
The 2018 Annual Conference will once again be held in Charlotte’s Ballantyne Hotel and Lodge, August 19-22. Opportunities for participation will be posted in this space in November.
If you are interested in serving on the Board of Directors or a committee of the association please contact the association headquarters. We are recruiting for members for the Board and the Annual Conference, Communications and Membership Committees. Appointments will be made in December.
The association staff sends it’s best wishes to Rosa Garcia and the staff of MSI’s Puerto Rico office. We wish you and the entire island a speedy recovery in the aftermath of hurricane Maria.