The ruling of the Avrahami vs Commissioner of Internal Revenue court case finally provides additional clarity for captives organised under Section 831(b), according to Anne Marie Towle, consulting practice leader and executive vice president of JLT Insurance Management.
The US Tax Court has backed the Internal Revenue Service’s (IRS) decision to deny Benyamin and Orna Avrahami access to the Internal Revenue Code Section 831(b) election for certain financial years.
Judge Mark Holmes ruled on 21 August that payments made to the Avrahamis by their micro captive, Feedback, amounted to taxable dividends outside of the scope of certain tax elections.
Commenting on the case, Towle said: “Micro captive owners who operate their captives for legitimate risk transfer and follow best practices, including those managed by JLT Insurance Managament, are not impacted by this ruling.”
“As an industry best practice, we don’t recommend that our clients utilise third-party risk pools to qualify as an insurance company for tax purposes. If any captive owner has concerns, we will be happy to answer their questions.”