Captive Insurance Company
Jeremy Colombik , CPA
Below is the example on this test of Relatedness from the staff of the Joint Committee on Taxation .
Assume that in 2017 , a captive insurance company does not meet the requirement that no more than 20 percent of its net ( or direct ) written premium is attributable to any one policyholder . The captive has one policyholder , Business , certain of whose property and liability risks the captive covers ( the specified assets ), and Business pays the captive $ 2 million in premiums in 2017 . Business is owned 70 percent by Father and 30 percent by Son . The captive is owned 100 percent by Son ( whether directly , or through a trust , estate , partnership , or corporation ). Son is Father ’ s lineal descendant . Son , a specified holder , has a non-de minimus percentage interest in the captive ( 100 percent ) greater than in the specified assets with respect to the captive ( 30 percent ). Therefore , the captive is not eligible to elect section IRC 831 ( b ) treatment . ( It fails this test )
If , by contrast , all the facts were the same except that Son owed 30 percent and Father owned 70 percent of the captive , Son would not have a non-de minimis percentage greater interest in the captive ( 30 percent ) than in the specified assets with respect to the captive ( 30 percent ). The captive would meet the diversification requirement for eligibility to elect section 831 ( b ) treatment . The same result would occur if Son owned less than 30 percent of the captive ( and Father more than 70 percent ), and the other facts remained unchanged .
Any insurance company for which an 831 ( b ) election is in effect for a taxable year must report information required by the Secretary relating to the diversification requirements imposed under the provision .
The complexity of these new rules clearly demonstrates the importance of working with an experienced captive insurance administrator to ensure compliance . With proper structuring , a business owner employing a captive can still achieve efficient tax benefits , minimize insurance cost , manage their risks , and create a profit center .
For the first time in 30 years , there have been significant changes to the IRS code pertaining to captive insurance companies . meet the author :
Jeremy Colombik , CPA
President & CPA Tax Law Solutions
Jeremy Colombik is an experienced , licensed financial professional . His accomplishments include being named as a Top of the Table member for his 2008 through 2015 Life Insurance sales as well as a financial specialist for executives & business owners . Having Top of the Table membership is the highest designation that a Life Insurance producer can obtain . He is a graduate of Western Illinois University , having obtained a Bachelor of Business degree with a major in Finance . Jeremy is a licensed CPA and a member of the American Institute of Certified Public Accounts , the Illinois CPA Society , and the North Carolina Association of Certified Public Accountants . Furthermore , he has been in the captive industry for over 10 years and is a member of the Captive Insurance Companies Association and the North Carolina Captive Insurance Association . In addition , he serves as Vice Chairman , Chair of the Membership Committee , and is on the ethics sub-committee for the North Carolina Captive Insurance Association . Jeremy is the President of Management Services International ( MSI ). MSI currently manages over a hundred businesses that are utilizing a captive insurance company structure . MSI currently is one of the largest captive managers in the state of North Carolina . Jeremy specializes in IRC Sec . 831 ( b ) captives . He is a sought after speaker for professional groups , such as ; CPAs , lawyers and financial advisors , on how a captive structure works and could be a great benefit to their clients to manage their clients or company ’ s risks .
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