On June 12, AGC presented its concerns to the Internal Revenue Service (IRS) about the agency’s proposed rule to investigate and audit captive insurance companies that elect to be taxed as a so-called “small captive” or “831(b) captive.”

On June 12, AGC submitted comments to the Internal Revenue Service (IRS) about its proposed rule to investigate and audit captive insurance companies that elect to be taxed as a so-called “small captive” or “831(b) captive.” If the proposed rule were to go into effect as-is, any small captive that did maintain at least a 65 percent loss ratio over the past 10 years, would be deemed as a “listed transaction” that triggers an investigation by the IRS.

AGC has heard from several captive insurance service providers that this could severely jeopardize the ability of many (if not most) legitimate small captives used by contractors to continue as an ongoing operation, without providing them with a means to transition to a “large captive” or “831(a) captive.” 

AGC recommended that the IRS use a different method to determine whether a small captive should be “listed” (certifying that the captive is actuarially sound), and to provide an “off-ramp” for small captives to transition without having to form a new entity altogether.

If you have any questions, please contact Matthew Turkstra at (202) 547-4733, or [email protected].