Workers Comp Audit Stress Reducer
Use It For Your Next Premium Audit

Captive Taxes Decision – IRS Recently Shocks With Recent Ruling


IRS Decided No Captive Taxes For Now

IRS shocks with no captive taxes decision.

One of the most hotly debated and controversial topics since the bid-rigging accusations have hit the Workers Compensation world.

Vector Graphic of Captive Taxes and Calculator and Coins

The Internal Revenue Service has performed a complete U-turn on attempting to tax captives upfront, or not allow the upfront tax write-off.

As I said in my last blog from a few weeks ago on this situation, I felt that the IRS was going to completely tax captives on the funds that were set aside to pay claims and not allow the taxes to be written off on the reserves set aside to pay claims when the claims were paid. The IRS has always said that a taxable event happens when the money is set aside for any type of financial arrangement. However, now captives are an exception to the rule.

Ever since September 2007, the IRS had said they were going to have public hearings on them taxing captives. I was 99.9% sure they were going to tax captives upfront when the money is set aside for paying claims – or in reality – were not going to allow a tax write-off, which is one of the main benefits for a large employer to create a captive for their insurance, especially for Workers Comp.

The IRS Captive taxes decision makes for a more hands-off approach to captive taxes.  One has to wonder what the future holds for captives as a tax-reduction vehicle.

Calendar Captive Taxes September

Captives may now spread very quickly as an alternative risk financing arrangement. That is until the IRS takes another crack at trying to disallow the reserve write-off for taxes.

Captives are not the answer for all insurance situations, but they are now much more appealing with the advantage of an upfront tax write-off for reserves.

Next Up – The Woes of North Dakota’s Workers Compensation Program

©J&L Risk Management Inc Copyright Notice



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


Get the latest workers' comp news FREE!

This field is for validation purposes and should be left unchanged.