Captivating Thinking

By: Sean King, JD, CPA, MAcc

Principal & In-House Counsel, CIC Services, LLC

Question: If a business owner lacks “sophistication” regarding insurance and relies on a captive manager to operate a captive insurance company, is this evidence of a sham?

Welcome to part 6 of my series, addressing naïve and misguided criticisms of small captive insurance companies and the small and mid-market companies that rely on them as part of their risk management program.  As a refresher, I have noted that there is growing concern among regulators, the IRS, and captive insurance professionals that too many

By:  Sean King, JD, CPA, MAcc

Principal & In-House Counsel, CIC Services, LLC

Question: Is it reasonable and legitimate for policy premiums paid to a captive insurance company to be higher than typical premiums paid for “similar” commercial insurance?

A typical attack leveled by the I.R.S. against captive insurance companies to suggest evidence of a sham transaction is that the premiums paid are “exorbitant.”  Not surprisingly, the I.R.S. doesn’t clarify or define what

By Sean King, JD, CPA, MAcc

Principal & In-House Counsel, CIC Services, LLC

Question: Is a captive insurance company a sham if it was introduced to a business owner by a financial advisor?

This week, I am continuing my series about distinguishing legitimate captive insurance arrangements from shams.

Remember, there is growing concern among regulators, the IRS, and captive insurance professionals that too many small captive insurance companies (CICs) 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.  While we share this concern, many of the guidelines offered up by the IRS and some captive professionals to differentiate good and bad captives (and good and bad captive advisors), are mostly useless.  Most are nothing more than characterizations

By:  Sean King, JD, CPA, MAcc

Principal & In-House Counsel, CIC Services, LLC

If a captive insurance company does not replace third party commercial coverage, is it evidence of a sham?

The short answer is an emphatic “no!”  To suggest so would require complete ignorance