Captivating Thinking

Insurance giant, Marsh, recently released a benchmarking report which outlines trends in the U.S. captive insurance industry.  The most surprising finding is that “only one-third of US captive owners treat their captives as insurance companies for US federal income tax purposes.”  CAPTIVE INSURANCE TIMES recently covered the report in an article titled “Marsh Charts Captive Evolution” written by Stephen Durham on April 30, 2014.  According to Mr. Durham, “The finding suggests that captives are being used more as a tool to generate operational and risk management value rather than for their tax efficiencies.”

There’s an old saying among frequent users of the Internet: “Don’t feed the trolls”. By this is meant, don’t respond to people who deliberately make controversial or misleading statements (as doing so just gives them the attention or business that they crave and don’t deserve).

I try to honor this advice when I can. But occasionally I feel compelled to feed a troll in order to keep the public from being misled. You see, the problem with trolls is…sometimes they wear a disguise. In fact, by all appearances, some trolls may even appear to the uninformed public to be unbiased “experts” on the matters upon which they opine. Believe it or not, some trolls are even lawyers.

Take, for example, attorney Jay Adkisson. About once a quarter or so, Jay decides to publish some pretty scary and confusing things about captive insurance companies—things which seem designed to steer business away from his competitors and toward his own firm or favored third parties. Anyone knowing what I know, which includes an ever-increasing percentage of the captive insurance industry, easily sees through Jay’s charade. But, the problem is…the general public doesn’t usually know what I know, and so they are susceptible to being misled.

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Over time, taxes can take a heavy toll on a business and its owners.  Year after year, profits are stripped away to pay taxes often resulting in a business that is less prepared for the challenges and risks it may face in the future.  Congress doesn’t want small and mid-size businesses and business owners to be hollowed out by excessive taxation either. 

It’s April 15, and business owners across America are mailing checks to the IRS.  One way to look at mailing a large check to the IRS is, “it’s a good thing because it means we made money.”  Another way to look at mailing a large check to the IRS is, “what tax avoidance vehicles would enable us to better serve our business and hold on to hard earned profits for the future?”  To what lengths should business owners and professionals go to reduce their taxes