By Sean G. King, JD, CPA, MAcc
Principal & In-House Counsel, CIC Services, LLC
There is growing concern among regulators, the IRS, and captive insurance professionals that too many captive insurance companies, especially the small 831(b) variety, lack economic substance—that is, that they are shams constructed for the purpose of avoiding taxes rather than for real insurance and risk management reasons. The criticism is that some captives are formed to achieve tax objectives while failing in substance to provide any meaningful insurance or risk management benefits.
While we share this concern, many of the guidelines offered up by some captive professionals, and even the IRS, to help the public differentiate good and bad captive (and good and bad captive advisors), are mostly useless. In many cases the proffered guidelines are both too broad Continue Reading