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?
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 had really 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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