Sometimes a headline comes along which casts much needed perspective on a situation. The situation I have in mind is the auditing of captive insurance companies by the Internal Revenue Service (IRS). And this brings up a question: Should small and mid-market business owners miss the opportunity to own their own insurance company for fear of being audited?
A better question would be: Should business owners either not set-up or close down their existing retirement plans for fear of being audited?
Consider that PLANSPONSOR magazine recently reported that one third or retirement plans have been audited in the past two years. PLANSPONSOR was reporting the findings of a Willis Towers Watson U.S. Retirement Plan Governance Survey based on responses from more than 300 U.S. retirement plan sponsors representing a wide range of industries. The survey was conducted in February and March 2016. The article specifically reported that:
…nearly one-third (31%) of respondents have had their retirement plans audited by the Internal Revenue Service or Department of Labor. Larger employers reported an even higher audit rate. Roughly half of employers with at least 25,000 employees have faced an audit over the past two years.
CLICK HERE to read the entire article in PLANSPONSOR.
Our experience as a captive manager indicates that captive insurance companies are audited with LESS frequency than retirement plans. Furthermore, the improved risk management posture and significant savings in both insurance costs and taxes FAR, FAR outweigh the cost of the audit.