The United States Department of the Treasury and the Internal Revenue Service are compelling captives involved in certain 831(b) arrangements to report a description of their tax structure to the IRS by 30 January, 2017.
Universal Risk and its Bermuda affiliates, over its many years, has completed formation of over a hundred “captive” structures and never has formed an 831(b). It has been my belief that, ultimately, they would come under scrutiny.
We can accomplish the desired results through the use of our Rent A Captive arrangements; and, without a premium ceiling of $1,200,000. These structures date back over 25 years and have stood the test of time.
Among the requests for disclosure is a description of “when and how the taxpayer became aware of the transaction”, a description of the transaction in sufficient detail and a description of all the types of coverage the captive is providing.
I welcome you to contact us todiscuss replacing an existing 831(b); or, talk about a new program. We provide the following in the U.S. and Bermuda, as well as direct access to Lloyd’s through our London Managing Director.
| Rent-A-Captive programs |
| Collateral Alternative (LOC) plans |
| Worldwide reinsurance placement |
| Broking to Bermuda insurers |
| Programs for all classes of insurance |
| New product lines and consulting |
| Deductible Reimbursement Policies |
| Captive formation & management |
| Pure fronting arrangement |
| Funding arrangements |
| Direct policies and certificates |
| Accounting, financial and banking |
Quota share reinsurer too many major primary/fronting carriers.
Captive Review: “This notice imposes filing requirements which subject taxpayers to penalties if they don’t comply with it.”
on 831(b) fire Tags: 831(B), Charles Lavelle, Internal Revenue Service, Tax The United States Department of the Treasury and the Internal Revenue Service are compelling captives involved in certain 831(b) arrangements to report a description of their tax structure to the IRS by 30 January, 2017.
IRS Notice 2016-66 attempts to identify 831(b) “transactions of interest”, appearing to particularly target those engaged in loans back to parent or reporting a loss ratio of less than 70%.
Captive managers and tax advisors are expected to encourage clients to comply with the Notice, although it will add to an already heavy workload for the industry as it contends with the usual endof-year rush as well as the restructurings necessary to comply with the impending changes brought about by the PATH Act.
Among the requests for disclosure is a description of “when and how the taxpayer became aware of the transaction”, a description of the transaction in sufficient detail and a description of all the types of coverage the captive is providing.
Charles Lavelle, senior partner at Bingham
Captive Review reported in October the Self-Insurance Institute of America (SIIA), along with 15 state captive insurance associations, had written an open letter to the IRS and Treasury requesting further guidance on how the PATH Act will be interpreted when it comes into force on 1 January, 2017.
This latest Notice from the IRS, however, does not appear to be in response to that request.
Lavelle added that it was possible to draw some positives from the notice since it appears to be the first time the IRS had admitted there are legitimate risk management reasons for utilizing the tax election.
“The Notice says that the IRS and Treasury recognizes that there are proper 831(b) arrangements, but the IRS is gathering the information to help it distinguish between those that are abusive and those that are not,” he said. “The IRS also asks for comments. Hopefully this process, which will be informed by court opinions, will ultimately result in an understanding of how to properly operate under section 831(b).”
The Notice stated: “The Treasury Department and the IRS believe this transaction (“micro-captive transaction”) has a potential for tax avoidance or evasion.
831(b) arrangements should be identified specifically as a tax avoidance transaction and may lack sufficient information to define the characteristics that distinguish the tax avoidance transactions from other § 831(b) related-party transactions.
“This notice identifies the transaction described in section 2.01 of this notice and substantially similar transactions as transactions of interest for purposes of § 1.6011-4(b)(6) of the Income Tax Regulations and §§ 6111 and 6112 of the Code. This notice also alerts persons involved in such transactions to certain responsibilities and penalties that may arise from their involvement with these transactions.”