June 2015

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

The term “game changer” has often been used to describe people or entities that break from the established or expected norms.  A “game changer” often defies existing paradigms or creates new paradigms.  In sports, a “game changer” is often an athlete that is far superior to his or her contemporaries, is very versatile or seems to always deliver in high impact situations.

The same can be said of “game changers” in business.  However, in business, “game changing” behavior is often a matter of discovery or invention, unlike sports where “game changing” behavior is almost always the result of raw talent and hard work.  

Here is a captivating question.  How can a small or medium-sized business turn its risk management into a true profit center?

It sounds impossible – turning risk management into a profit center.  After all, risk management pays insurance premiums and

As a business grows and matures, its owners may look for additional means to grow revenue and boost business wealth.  A common approach is to start or acquire an additional business that serves the core business.   This is often described as