Micro captives set for renewed scrutiny, ABA panel concludes


A panel of captive insurance experts gathered this week to review a number of recent actions taken by the IRS and the Senate Finance Committee with regards to micro captive insurance companies.

Steven Miller, the former IRS Acting Commissioner and Alliant group National Director of Tax, and Dean Zerbe, the former Senior Counsel to the US Senate Finance Committee and Alliant group National Managing Director, were joined by seven other experts at a roundtable discussion hosted by the American Bar Association (ABA).

The panel discussed the addition of micro captive insurance abuse to the IRS's "Dirty Dozen" scams list for 2015, the proposed amendments to Section 831(b) and Senator Charles Grassley's (R-IA) request that the US Treasury Department "perform a study on the abuses of captive insurance for estate planning purposes."

The panel came to a combined conclusion that these actions point to a renewed emphasis on micro captive insurance compliance and highlighted the need for both micro captive owners and providers to be up to date on the latest regulations, case law and other guidance.

During the presentation, the panel noted that several audits of micro captive providers and their clients were already underway and confirmed that more audits will be coming as the IRS increases its enforcement activities.

"Treasury has placed captives on their priority guidance list and the Senate Finance Committee has already asked Treasury for feedback on rumoured abuses with a requested report," said Miller. "Companies that have utilised captive insurance want to get ahead of this and make sure their operations are in order and not wait until the IRS calls."

Zerbe added: "With captives on the Dirty Dozen list it is clear that the IRS and Congress' interest as to captive insurance is quite broad – including use of captives for estate tax, life insurance and other tax planning.  Having an actuary or a piece of paper from the state insurance commissioner isn't going to be enough to get a company past an IRS audit."

The IRS is actively examining several companies that market captive insurance to small and medium businesses as well as those business owners that form captive insurance companies.

"The IRS is looking hard at captive insurance to make sure it looks and acts like insurance," said Miller while discussing the IRS's review process.

"Alliant group is representing before the IRS a number of companies that have utilised captive insurance and it is clear that the IRS wants to understand how the captives are promoted and marketed as well as administered."

Micro captives, IRS, Senate Finance Committee, American Bar Association, dirty dozen, Steven Miller, Dean Zerbe, Alliant group, 831(b)

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