The Self-Insurance Institute of America (SIIA) says that while the Internal Revenue Service (IRS) continues activities related to captive insurance, it must also move towards recognising what an appropriate structure is, and issue appropriate guidelines to that purpose.
Earlier this month, the IRS urged participants in ‘abusive micro captive insurance arrangements’ to exit these transactions as soon as possible.
SIIA explains that it continues to be supportive of curbing abusive practices within the industry and urges participants within potentially abusive transactions to heed the IRS’ advice.
However, at the same time, it notes that a vast majority of captive participants are utilising the structure to protect themselves against appropriate risks, as the tax code intended.
Among these captive participants are American small- and medium-sized businesses that are utilising Internal Revenue Code 831(b) to mitigate risks associated with COVID-19, from business interruption, to loss of customers and supply chain interruption.
The US Congress gave the IRS authority to undertake guidelines related to ‘abusive captive practices’ as part of the Protecting Americans from Tax Hikes (PATH) Act of 2015.
“Six years later, the industry is still waiting, as are policymakers in Congress. As these small businesses are being attacked by the IRS for doing the right thing, many are simply trying to stay afloat,” SIIA comments.
The IRS has stepped up examinations of ‘abusive micro captive insurance arrangements’ and has recently won another micro captive case in March against Caylor Land & Development.
In the court case on 10 March, Judge Holmes found that the micro captive involved did not provide insurance because it failed to distribute risk and didn’t act as an insurer commonly would.
While the IRS may remain focused on certain captive structures, SIIA says it strongly believes that it must do so in “a responsible and fair manner”.
As part of its advocacy, SIIA notes that it’s providing ongoing education to policymakers and regulators, including discussion with federal agencies.
In addition, SIIA’s captive committee is undertaking revisions and updates to the captive manager code of conduct, which provides a set of ethical business conduct guidelines to captive managers in areas ranging from integrity and conflict of interest, to advertising and confidentiality and practice management.
Earlier this month, Jerry Messick, CEO of Elevate Risk Solutions, was named chairman of the SIIA captive committee for 2021.
Messick has served on SIIA’s captive committee for seven years, including serving as chairman of the Captive Manager Code of Conduct Task Force.
