Captive Insurer Swell Seeks $5 Million From IRS Over Premium Tax

Five captive insurance companies sued the IRS for $5 million in collective tax deficiencies and penalties after the agency denied that their income from premiums were actually received in exchange for insurance.

Captive insurers are typically formed by business owners to indemnify their other companies, usually in cases where the option would provide a lower cost compared to commercial policies. But small “micro-captive” arrangements can also come with increased tax risks, as the IRS has cracked down on abuse where captive owners set unjustifiable rates to maximize premiums and boost associated tax deductions.

A slate of captive insurance companies filed ...