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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.



Texas captive bill ready to be signed into law
The Texas legislature has passed the state's new captive bill to allow for non-affiliated reinsuranc Read more

KBRA hires Carol Pierce for director of insurance role
Kroll Bond Rating Agency (KBRA) has named Carol Pierce as the new director of the agency’s insuran Read more

Insurance and reinsurance need to adapt to thrive
Insurance and reinsurance need to learn to adapt to the challenges it is facing, Denis Kessler, chai Read more

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Eddy Van Cutsem is set to leave Insurance Ireland at the end of June, after taking on the role of in Read more

BEPS still causing issues for insurers
The OECD's crackdown on base erosion and profit shifting is still causing a number of issues at capt Read more

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