Aggressive IRS Auditing Dampens Appetite for Captive Insurance

Business owners are likely to shy away from forming small captive insurers in light of persistent audits and a streak of IRS court victories deeming the insurers’ transactions tax abusive.

“Taxpayers are in this really no-win situation where they can either say, okay, I guess I’ll just go without this insurance and close down my captive because you, the IRS, don’t like it; or, I’ll completely lose all the tax benefits that Congress enacted for these small captive insurance companies,” said Melissa Wiley, a Kostelanetz LLP partner advising on audits and administrative tax controversies.

Business owners can indemnify their ...