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Captives Tax Deductions Getting Closer Look From IRS This Month


News Is On Captives and The IRS

I was a little slow to understand how captives worked when they first were written a few years ago. I do not want this post to sound like “I told you so.” Check the prior posts on captives. Has the day of atonement arrived for this type of insuring agreement?

Vector of Man Balancing Coins Words Tax Captives Graphic

The IRS – as I said in a prior post – is not going to let what they consider an immediate tax deduction for Workers Comp reserves established for future losses of an affiliated company. This never sounded quite right to me. How could a tax deduction be earned for money that HAS NOT been paid for Work Comp losses? The IRS is never going to let a tax deduction occur for a FUTURE event such as a captive making a claim payment.

The IRS passed the rule in September 2007. They are holding hearings on this rule on Feb 29th in Washington, DC. Some of the captive managers have quit writing captives. Will there be some type of retro-tax? Who would be responsible for the retro-tax payments?

Workers Compensation has become a complicated insurance product. The post-Feb 29th ruling by the IRS could make this even more complicated.

Update – The IRS gave a pass to Captives for now.    The IRS still asserts that many of the 831 (b) micro-captives abuse the tax system.   They have been listed as one of the Dirty Dozen tax dodges.

Next Up – What number should a safety person be the most concerned with for WC?

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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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