Queen: IRS micro-captive position ‘unconstitutional’

Matthew Queen, the owner of the Queen Firm has reiterated that the Internal Revenue Service (IRS)’s proposed regulation on micro-captives, or for 831(b) captive insurance elections, is unconstittional.

Queen was one of six people who made official statements at the IRS hearing on this on July 19.

Queen subsequently commented on LinkedIn that his position is simple: “The IRS's proposed rules are unconstitutional. The rules declare any captive with a < 65% loss ratio as abusive but the taxpayer may issue dividends to "increase" a lower loss ratio to 65%. This is just not how loss ratios are calculated & it disregards how claims, liability tail, and the IBNR line item operate.

“The business of insurance is state law. The McCarran-Ferguson Act has been around since WWII and supersedes federal law. There is no charitable argument that attempting to incentivize the payment of (taxable) dividends constitutes an attempt to govern the business of insurance. That is wholly the province of the states.”

The IRS has said that it will take what was said at the hearing into account before it makes a final determination on the regulation.