Captivating Thinking

By Sean King, JD, CPA, MAcc

Principal, CIC Services, LLC

This is Part 2 of a series on the United States Tax Court’s recent Avrahami decision.

Introduction

Recently 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.

In Part 1 of this series we discussed the court’s decision that the Avrahami captive insurance arrangement failed

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