Captive Tax Advantages – Tax Court Ruling – One To Read NOW
Some Captive tax advantages may have been eroded with a recent US Tax Court decision. The case is Reserve Mech. Corp. v. Commissioner, 2018 Tax Ct. Memo LEXIS 87.
The three articles that started quite a buzz in the captive world are from: (LexisNexis full article behind paywall)
If you are interested in Captives, and you should be if you are involved with any facet of Workers Compensation, the articles are very much worth a read. If you perform a Google search on
Reserve Mech. Corp. v. Commissioner
one will find volumes of information.
Many companies, captive administrators, attorneys, and other people involved with captives have issued statements and opinions on the Reserve Mechanical case.
Captive Tax Advantage Case Document
The PDF of the entire 66 page US Tax Court decision is here. You will need a PDF reader to read it. This decision may be one to download and read for yourself. The decision is a complicated one. The bottom line is the owners of the captive could not avoid a 30% tax on the captive insurance agreement. The captive tax advantages were not allowed.
Many of the legal, captive, and insurance pundits pointed to the Conclusion Section III (page 62). The first part of that section is below.
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III. Taxability of Reserve’s Revenue
We concluded that Reserve did not issue insurance or reinsurance contracts during the tax years in issue and therefore it did not receive more than 50% of its gross receipts from insurance premiums. See secs. 501(c)(15), 816(a).
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One has to draw their own conclusions. The 14 articles on Captives that I wrote can be found here. The article on rent-a-captive turned out to be one of the most popular ones on this website.
We shall see what the future holds for onshore and especially offshore captive tax advantages.
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