Beautrium /
5 January 2024ArticleUSA analysis

Microcaptives: a 2023 roundup

As 2024 arrives, it is worth reflecting on how far the needle has moved on two of the most important issues facing the microcaptive insurance industry. First, pushing back on overreaching Internal Revenue Service (IRS) regulations and enforcement activity, and second, gaining further clarity from Congress regarding what constitutes a legitimate 831(b) tax election.

Fundamentally, there has been a favourable shift in public awareness about these issues. Mainstream and trade news outlets across the country have been very receptive, airing or publishing positive coverage of the microcaptives industry throughout the year. Negative coverage also seems to have slowed, with fewer headline-grabbing court cases about microcaptive abuses.

For example, in July, Bloomberg Tax published an op-ed from Van Carlson, chief executive officer of microcaptive administrator SRA 831(b) Admin, that excoriated the IRS for the poorly considered microcaptive regulations it proposed earlier this year. Carlson has also been interviewed on mainstream radio shows, including NewsTalkSTL in St. Louis, Missouri, and The Doug Wagner Show in eastern Iowa, where his message about the value of microcaptive insurance for small business owners was well received.

At the same time, elected officials have been supportive of the industry, with states such as Iowa passing laws legalising captive insurance this year. Iowa’s captives legislation passed through the state legislature without a single dissenting vote and was signed into law by governor Kim Reynolds in June.

The primary force behind Iowa’s captive insurance legislation was state senator Michael Bousselot, who penned an op-ed in The Des Moines Register shortly after the bill became law. Bousselot expressed strong support for captive insurance and shared his belief that the IRS needed a more reasonable and consistent approach to microcaptive regulations.

In summer 2023, when the IRS held its hearing on the proposed regulations, more than 100 comments were submitted in support of microcaptives. These comments reiterated the need for the IRS to collaborate with industry leaders and voiced the importance of this type of insurance to small businesses.

On Capitol Hill in Washington DC, efforts to educate members of Congress about the issue are ongoing. While education has been the primary goal to date, there is a growing consensus about the need to advocate for future legislation that would clear up much of the confusion around the 831(b) election and provide fair, reasonable guidelines for microcaptives to follow.

Additionally, members of the House Ways and Means Committee and the Senate Finance Committee have submitted questions to IRS nominees regarding their views on the agency’s enforcement tactics against microcaptive insurance companies. This demonstrates the success of the education effort and increased attention toward the issue from members of Congress.

Most recently, in early December, eight members of the House Ways and Means Committee co-signed a public letter to the IRS in support of the industry. The letter called on the agency not to legislate via regulation and enforcement, but rather to work with Congress to develop a fair, mutually agreeable path forward. This is the most prominent show of support yet, and one that will be vital to build upon in the future.

A review of the microcaptive insurance industry throughout 2023 shows undeniable positive results. Both the upcoming election cycle and the likelihood of new, major tax legislation in 2025 present clear opportunities for Congress to push back on IRS enforcement and regulation overreach.

It is to be hoped that industry participants remain committed to their supportive efforts over the next two years. Doing so will be essential to the future of microcaptive insurance.

Cassie Bachman is a captive insurance consultant based in West Hartford, Connecticut.