The Utah Captive Insurance Association (UCIA) board members have sent a letter to Utah's congressional delegation in response to the Internal Revenue Service’s (IRS) letter sent to micro-captive insurance company owners.
In the letter, the board explained that Congress has supported the captive insurance industry, and as part of the PATH Act of 2015, chose to increase the allowable premium under section 831(b), as a way to increase the effectiveness of micro-captives.
The letter also outlined Utah’s captive statistics, stating that all 430 captive insurance companies pay licensing and corporate structure fees to Utah, and are all required to have an annual board of directors meeting in Utah.
Additionally, board members noted that the total economic impact of the captive insurance industry to the state of Utah is estimated at more than $17million each year and those that are domiciled in Utah hold more than $1 billion in cash and other assets in Utah financial institutions.
Similar to the recent letter from Vermont Captive Insurance Association (VCIA) to the Department of the Treasury and the IRS, the UCIA references the COVID-19 pandemic and the “difficult and stressful climate for businesses”.
The association explained that many are small businesses which are “vital to our state’s economy are struggling to survive”.
The letter stated: “Sadly, it is in the midst of this global pandemic that the IRS has decided to ramp up their efforts to shut down legitimate captive insurance companies.”
The board highlighted the losses businesses are experiencing due to the damage done to the economy are covered by insurance policies issued by their captive insurance companies.
With the current unprecedented crisis, combined with the timing and the burden being placed on its members’ businesses, UCIA has “desperately” requested Congress to “petition the IRS commissioner, and demand that the IRS leave these businesses alone, or at the very least, suspend this unnecessary and overly-aggressive audit and examination activity until at least a year after the national COVID-19 emergency declaration is withdrawn”.
The letter noted: “While we understand the IRS’s concern over certain captives making an election under Section 831(b), the fact remains that the vast majority of businesses which use captives are doing so correctly. The fact that many businesses are currently filing claims and getting immediate relief from their captives is a testament to the validity of these captive insurance companies.”
In addition to the IRS letter, the board has urged Congress to review an IRS memo from the IRS large business and international division.
The recent memo from the division’s commissioner unveils a new “people-first initiative,” asking all department employees to, in essence, “stand down” from examinations and related activities during this pandemic crisis to assist taxpayers.
The board highlighted that “under Section II, activity continuing, that the directive is to continue work on their ‘micro-captive insurance campaign’, in addition to a small handful of other campaigns”.
The letter concluded: “Clearly, the IRS LBI division desires to institute certain initiatives to ease the burdens of business- owners during this ongoing pandemic, but they have specifically chosen to continue unabated their excessive attack on all captive insurance company owners.”
