Captive Payments Not Deductible as Insurance, Tax Court Says

Shareholders for a risk management company can’t deduct from their federal income tax premium payments made to an affiliated captive insurance company because the payments at issue weren’t for insurance, the US Tax Court said on Thursday.

Risk Management Strategies Inc., an S corporation, reported $1.2 million in expenses for purported insurance coverage provided through an arrangement with its captive insurer, Risk Retention Ltd., and other entities, according to the court. The IRS determined federal income tax deficiencies and accuracy-related penalties for the RMS shareholders in 2018, saying the arrangement didn’t actually provide insurance coverage, and therefore couldn’t support deductions ...