Captivating Thinking

The number of captive insurance companies continues to grow, because establishing and owning a captive insurance company is one of the most powerful financial vehicles available to businesses and business owners.  By choosing to own their own insurance company, business owners can take better control of business risk mitigation, insure risks that are currently not insured, provide better asset protection to their business, and accumulate wealth in their captive insurance companies.  Once a business owner experiences the many benefits of owning a captive insurance company, it is sometimes difficult to find the cash flow to pay annual casualty insurance premiums to the captive, particularly when economic times are difficult.

It’s no surprise that the captive insurance industry continues to grow and thrive.  As we are preparing to attend the Captive Insurance Companies Association (CICA) conference next week, we have received a wave of invitations from actuaries, domiciles, claims administrators and a myriad of other industry service providers.

Captive insurance companies were first formed in the 1950s.  By 1980, there were approximately 1,000 captive insurance companies.  Today, there are just over 6,000 captive insurance companies and growing. 

Should Fear of an Audit Trump Winning Business Decisions?

A common concern we encounter when discussing the risk management and numerous other benefits of owning your own captive insurance company (CIC) is that owning a CIC may increase the risk of an audit by the IRS.  Such fears are often expressed by a client’s CPA or attorney who just doesn’t know any better, and occasionally by a few who do (or at least should).

Whether the IRS actually is conducting an audit sweep of captives is actually the subject of quite a bit of debate within the captive industry at the moment.  There is much rumor and innuendo and very little by way of facts.  But, here are a few facts regarding audits that are not debatable:

Tax avoidance is perfectly legal and encouraged by the IRS,

but tax evasion is against the law.

–         Internal Revenue Service Website

Countless business owners across America mailed checks to the IRS this week.  It certainly is difficult to part with hard earned profits.   Which begs the question, to what lengths should business owners and professionals go to reduce their taxes and keep more of their hard earned money?

The words “tax avoidance” may sound a bit sinister, particularly in a culture where politicians and the media