Workers Comp Captives – IRS Mulling Changes
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 about 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. In fact, 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.
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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