16 February 2015Law & regulation

Senate Finance Committee bill to boost micro captives

The Senate Finance Committee has passed a new bill aimed at increasing the premiums ceiling for small captives.

Under current law, parents of 831(b) captives can make up to $1.2 million in annual written insurance premiums and have elected to pay tax only on investment income. They pay no tax on their underwriting profits.

The bill would adjust the eligible premium index for inflation – for the first time since 1986 – to $2.2 million, increasing the current maximum limit and indexing it to inflation thereafter.

This comes just a week after the Internal Revenue Service added small or micro captives to its “Dirty Dozen” list of tax scams.

Senator Chuck Grassley of Iowa led the Finance Committee passage of bipartisan legislation, supported by Tammy Baldwin of Wisconsin and Joe Donnelly of Indiana.

Grassley worked on the measure in prior Congresses with Senator Tom Harkin and other senators.  The measure was pending in the last Congress and advanced last week as an original Finance Committee bill included in a package of non-controversial tax bills.

“Our legislation updates a key threshold for small insurance companies so they can continue serving their rural customers,” Grassley said. “This legislation helps to ensure that small mutual insurance companies will continue to be able to serve rural residents who have unique circumstances, such as living far from a fire station, and so are often unable to obtain private property insurance through traditional insurance companies.”

Baldwin added: “Small mutual insurance companies have a long and important history in the development of rural business and agriculture in Wisconsin. The bipartisan legislation passed by the Senate Finance Committee today will ensure that the many mutual insurance companies serving small and rural communities in Wisconsin, several for over 100 years, will continue to be able to provide the certainty to their policyholders that is important to economic growth.”

Donnelly said: “This bipartisan legislation would help Indiana’s small mutual insurance companies serving Hoosiers in rural communities. Small mutual insurance companies are important to Indiana’s economy, and this common sense bill would make a much-needed update to the law.”