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Workers Comp Captives – Viable Alternative Unless IRS Changes


Workers Comp Captives – IRS Mulling Changes

Picture of Workers Comp Captives Man Drawing Ladder Into Man On screen

The Workers Comp Captives are the IRS news today. The blog post today was supposed to be about Searching for Workers Comp terms in Google and the mistakes that are made in the Work Comp searches.

We will get back to that tomorrow as there was a bit of interesting news today from the IRS about the use of Captives. I have been through a few Captive training courses that left me asking the question – How can a captive count as Workers Compensation insurance? The IRS is back to contemplating insureds not paying a tax on the reserves that are held for Workers Compensation expenditures.

For quite some time, companies that were insured through captives did not pay any tax on the reserve amounts. The IRS may one day rule that the reserves are taxable. There is an article out now saying that this may be the case. The situation will need to be monitored very closely in the next few years.

My understanding is that offshore captives would still not be taxable, as the IRS would have no jurisdiction over any offshore Work Comp captives. This would be very harmful to the domestic captive business, as the reserves remaining non-taxable is one of the greatest benefits of being in a captive. Vermont would be heavily affected.

31 States Workers Comp Captives USA Map Line
Public Domain – SPUI

The following 28 31 states allow Workers Comp captives:

  • Alabama
  • Arizona
  • Arkansas
  • Colorado
  • Connecticut
  • Delaware
  • District of Columbia
  • Florida
  • Georgia
  • Hawaii
  • Illinois
  • Kansas
  • Kentucky
  • Maine
  • Missouri
  • Montana
  • Nevada
  • New York
  • North Carolina
  • Ohio
  • Oklahoma
  • Puerto Rico
  • Rhode Island
  • South Carolina
  • South Dakota
  • Tennessee
  • Texas
  • Utah
  • Vermont
  • Virginia
  • West Virginia

Not all of the 31 states have Work Comp captives operating in them yet.

Next up – Searching for Workers Comp terms in Google and the mistakes that are made in the Work Comp searches

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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