There are 3 certainties in life:
- Every November, self-proclaimed captive insurance expert Jay Adkisson will publish a sensational article designed to spread Fear, Uncertainty, and Doubt (FUD) about captive insurance companies
On November 17, 2019, Jay Adkisson, who is self-admittedly not a tax attorney, published his latest anti-captive (and anti-business) article on Forbes’s site. The article is titled “IRS Suggests Criminal Referrals To Be Made In Abusive 831(b) Captive Tax Shelter Cases.” Citing nothing but rumor and innuendo, Jay “Chicken Little” Adkisson assures his readers that the cops are coming for some captive insurance companies and/or their advisors.
It’s important to recognize that he’s been saying the same thing for years. Eight years ago—yes, nearly a decade ago now – Chicken Little warned that many business owners who chose to protect their businesses through small captive insurance companies making an 831(b) election, created by Congress in 1986 – YES, CREATED BY CONGRESS AS LAW IN 1986 —would end up “eating their Christmas dinner with a spork” in jail. Nearly a decade later, no cell doors have slammed shut on captive insurance company owners or their advisors.
In fact, during those eight years, six captive insurance relevant cases have gone to U.S. Tax Court. Three were victories for the IRS, but three were victories for the taxpayers. However, in none of the three cases that taxpayers lost (all of which were less-than-ideally structured arrangements, and a couple of which were quite aggressive) were civil negligence penalties even assessed, much more criminal charges pursued. NONE.
Regardless, if the cops are indeed coming, then Jay should be very worried, for Jay “Chicken Little” Adkisson was once (still is?) one of the most notoriously aggressive captive insurance promoters in the business. For some details on Jay’s past activities in this regard, see this LINK, and this LINK too.
Though in recent years Jay has tried desperately to obfuscate his historical role in mass promoting highly aggressive captive insurance structures—in part by lambasting in public far, far less aggressive schemes than those he promoted (and still promotes?) in private—his sleazy reputation rightfully persists. Everyone in the business who actually knows the business sees Jay’s “the sky is falling” public proclamations each year for exactly what they are—a lame and transparent attempt to hide his own tracks.
But unless captive owners and their advisors implement very aggressive types of structures like those once promoted by Jay Adkisson, or unless they intentionally lie, back-date forms or do various other intentionally fraudulent things, and so long as they rely in good faith on the good faith guidance of tax professionals, none of them should fear even civil penalties (at least as long as they are willing to resist them) much more being convicted of a crime.
Captives remain one of the most important risk management tools available to small businesses today. We know a great many small businesses that managed to survive catastrophe only because of their captive insurance company. No small business owner or his or her advisor seeking to form a captive for legitimate risk management purposes should let the obviously conflicted and self-interested annual prognostications of Jay “Chicken Little” Adkisson dissuade them.