Oxford Risk Management Group (Oxford) has submitted comment in reference to regulations proposed by the Treasury Department and Internal Revenue Service (IRS). The comment has been published in respect to disclosure and reporting obligations for ‘micro captives’.
The IRS has proposed regulations that, if passed, could severely limit access to captive insurance programmes for small- and medium-sized businesses in the US.
The IRS’ Proposed Rule 109309–22 seeks to over-regulate certain 831(b)-electing captives by creating loss ratio requirements of 65 per cent, loan back limitations and 10-year retroactive provisions.
The proposed regulations would designate some captive arrangements as ‘listed transactions’ within the remit of US tax laws, and others as ‘transactions of interest’. Two tests were proposed for these categories, a ‘loss ratio’ test and a ‘financing’ or loan-back test.
If finalised, the regulations would require disclosures by captives and certain participants in transactions meeting the two tests, Oxford says
The group recommends that the Treasury and IRS: “should not use the loss ratio and financing tests because of the “serious conceptual flaws” underlying them. These approaches are “inconsistent with how insurance actually works.
Oxford adds: “They should abandon the effort to designate captive insurance transactions as per se abusive, listed transactions, because Congress has not empowered the IRS to undermine the statutes it passes.”
“[It should] continue to require disclosures by labelling some captive arrangements as transactions of interest, under substantially different criteria subject to notice, and comment and provide safe harbours from any reporting for certain captive insurance arrangements meeting alternative, ‘improved’ criteria.”
Founded in 2010, Oxford is a captive insurance solutions provider.
