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Decision in Avrahami ‘coming soon’
14 March 2017 | Washington DC | Reporter: Mark Dugdale
A decision from the US Tax Court in the closely watched Avrahami v Commissioner litigation is expected soon, according to experts.

The case, which was tried in March 2015, centres on the owner of Arizona jewellery stores whose 831(b) captive provides direct property and casualty coverage to multiple entities, including real estate ventures, and reinsures terrorism coverage.

But the Internal Revenue Service (IRS) believes that the micro captive was organised to provide tax deductions under Section 831(b) of the Internal Revenue Code and lacks insurance risk, and that risk was not shifted to the captive.

According to legal experts from law firm Eversheds Sutherland: “In the case, the IRS argued that the Section 831(b) company in question was formed for income tax evasion purposes—namely, to facilitate deductions under Section 162 for premiums paid for insurance that were improperly deducted because the Section 831(b) company’s transactions did not qualify as insurance for federal tax purposes.”

They predicted: “A decision in this case is expected as early as this spring.”

The Avrahami v Commissioner litigation will be the latest twist in a tumultuous 18 months for micro captives when a decision is finally handed down.

The Protecting Americans from Tax Hikes Act of December 2015 made significant changes to Section 831(b), increasing the maximum premiums for insurance companies making the election to be taxed solely on investment income from $1.2 million per year to $2.2 million.

Then in November last year, the IRS released Notice 2016-66, which formally labelled micro captives as ‘transactions of interest’ and required them to report to the federal agency by 30 January 2017 due to their potential for tax avoidance or evasion.

This deadline was subsequently pushed back to May, but the IRS also named micro captives in its annual ‘Dirty Dozen’ tax scam list in February, for the third year in a row.



Guernsey must pay attention to UK’s ILS push, says McLaughlin
Guernsey should take the UK ‘seriously’ as it sets up an insurance-linked securities (ILS) regim Read more

Grant Thornton Cayman founding partner retires
Grant Thornton’s Terry Carson has retired, stepping down from his role as founding partner Read more

Drinker Biddle hires insurance pro in California
Dan Brown is based in the firm’s San Francisco office. He was previously a partner at Dentons wher Read more

Christina Kindstedt joins Advantage Insurance
Advantage Insurance has appointed Christina Kindstedt as senior vice president Read more

Delaware to allow captives to go dormant
Arkansas and Montana introduced legislation proposing a dormant status for captives last month Read more

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