August 2017

This is Part 1 of a series on the recent Avrahami decision.

By Sean King, JD, CPA, MAcc

Introduction

Last week the United States Tax court issued the long-awaited opinion in the Avrahami captive insurance case.  And after more than 30 years of losing most every captive insurance case of consequence, the IRS finally got a win.

The Avrahami case involved a small, foreign-domiciled captive insurance company (“CIC”) that had made both the 953(d) election (to be taxed as a US entity) and the 831(b) election (giving it favorable US tax treatment on its underwriting profits).   The CIC in question

A “sunk cost” is typically defined as money that once spent is never recovered.  In many ways, commercial insurance is a “sunk cost.”  Aside from providing peace of mind (which is a real benefit) and possibly meeting contract requirements (EG the state requires worker’s comp insurance and the bank requires property insurance), insurance premiums are never recovered unless

Every year, millions of Americans, hundreds of thousands of business owners, states, counties and municipalities make decisions based on what Congress wants them to do.

We all know that states make decisions based on Federal funds they will receive.  For example, Federal dollars were attached to implementation of “No child Left Behind” and “Common Core” in public schools.

Also, every year countless business owners

This almost sounds like an infomercial doesn’t it?  But wait… there is more!

But, there really is more.

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 vertical integration, and it is often effective because