Time and again, the I.R.S. has argued that captive insurance companies should be operated like or resemble the practices of commercial insurers. This line of argument and its permutations have repeatedly been struck down by the U.S. Tax Court in cases between the Service and captive owners. In fact, it was most recently shrugged off by the Tax Court in the January 2104 Rent-A-Center ruling.
A common myth we often encounter is that it costs too much to set up and operate a captive insurance company. In many cases, this is a false objection put forward to justify inaction. What is really needed is a cost-benefit analysis that weighs the true cost of captive ownership against all the benefits a captive affords. In conducting such an analysis, it’s important to consider the immediate, mid-term and long-term benefits of implementing a captive program
Every year, a vocal group of self-proclaimed captive experts trot out their marketing propaganda disguised as news articles or industry commentary. In reality, these articles are marketing pieces and they often suggest that small captive insurance companies, often described as “831(b) captives,” are giving the captive industry a bad name. One of the keys to propaganda is continuity and consistency of messaging, and years of droning on about supposed bad actors
It used to take a long time, in many cases a year or more, for a business to set-up a captive insurance company. And stories about the long road many companies faced in setting up their captive arrangement linger on, often in the minds and lore of “old guard” captive managers and attorneys who were able to charge larger fees by leading captive candidates through a long, over-analytical, dragged-out process to set up their own insurance company. This perception was further aided by domiciles and regulators who made the process unnecessarily arduous.
Fortunately, much has changed in the captive industry over the last ten years, making a past reality that “It Takes Too Long To Set Up A CIC” our choice for Myth #8.