The Self-Insurance Institute of America (SIIA) has written a letter in response to Executive Order (EO) 13924, asking for the treasury and office of management and budget (OMB) to direct the IRS to more appropriately define captive guidance while more efficiently and cost-effectively collecting the appropriate information regarding IRC § 831(b) transactions without hindering business recovery.
The EO, which was signed by US president Donald Trump on 19 May 2020, gives US federal agencies discretion to formulate and decline enforcement mechanisms businesses that have made good faith efforts to comply with regulatory and statutory standards and to consider principles of fairness in administrative enforcement and adjudications practices.
Ryan Work, vice-president of SIIA, explained that the Internal Revenue Service (IRS) continues to issue burdensome and needed mandates, such as Letter 6336.
In the letter, Work addressed the functions of a captive insurance companies and the history of them in the US alerted Steven Mnuchin and Russel Vought to the IRS Letter which was sent out to 150,000 American business owners on 20 March 2020, a few days after president Trump issued a state of emergency in regards to COVID-19.
Work said: “There is no doubt that small- and medium-sized businesses across the country have successfully utilised their captive insurance programmes to directly mitigate against COVID-19 related risks.”
“We continue to believe that American businesses with captive insurance should not be treated by the IRS as guilty before proven innocent,” he added.
“The fact that the IRS issued and demanded duplicative data in the midst of a national pandemic at the threat of perjury is signal enough of the gross negligence and violation of due process being undertaken by the IRS in this instance.”
He explained these types of activities need to stop, and more appropriate guidelines should be issued so businesses doing the right thing can continue to help deal with real risk and support economic recovery on the state and local level, rather than have the IRS hinder it.
Work suggested that there does not seem to be “much, if any, benefit” to the IRS for all of the information it requires to be filed.
He highlighted that in the US federal system, states have authority and jurisdiction over the regulation of insurance, “a fact that the IRS appears to be ignoring in this case”.
Several state domicile associations, including Arizona, Delaware, Georgia, Kentucky, Montana, Nevada, North Carolina Tennessee, Utah, and Vermont have expressed similar concerns on this issue.
According to Work, the states understand the IRS’ ongoing concern over certain 831(b) captives, the fact remains that the vast majority of the industry and businesses who operate captives are doing the right thing and complying with all state and federal financial filing requirements.
However, he noted the IRS Letter, and other IRS actions,“can reasonably be viewed as harassment”.
Work concluded: “This flies in the face of the underlying Internal Revenue Code and is contrary to recent actions by Congress as outlined in the PATH Act, provisions of which the IRS has yet to issue guidance on nearly five years after enactment, and despite numerous congressional inquiries.”