The 831(b) Institute has joined over two dozen organisations in asking the US Treasury and the Internal Revenue Service (IRS) to withdraw a new rule affecting micro-captive insurance companies. In a joint letter, the group argues that the final rule, issued in January and scheduled to take effect on 31 July, would place many small captive arrangements under classifications such as “listed transactions” or “transactions of interest”. They say this would expose small businesses and their advisors to added compliance requirements, legal risk, and potential penalties. The coalition warns that the regulation undermines a vital risk management tool used by small and mid-sized businesses, particularly when traditional commercial insurance is unaffordable or unavailable. It also states that the rule introduces ownership diversification and loss ratio requirements without basis in insurance data or statutory support. Further, the letter highlights that the rule mirrors legal flaws found in IRS Notice 2016-66, which is struck down in federal court for violating administrative law. The group argues that the regulation contravenes the PATH Act of 2015, which affirms the legitimacy of 831(b) captives and explicitly rejects earlier IRS efforts to eliminate them. Dustin Carlson, president of the 831(b) Institute, says the rule “threatens to dismantle a critical tool used by small businesses to manage risk” and “relies on a flawed understanding of small captive insurance”. Pete Sepp, president of the National Taxpayers Union, adds that the rule “violates principles of good tax policy and sets damaging precedents that could affect many taxpayers”. Michael Adelman, CEO of the Ohio Bankers League, notes that “low claims frequency doesn’t mean an arrangement is abusive,” adding that penalising effective risk controls “threatens access to insurance coverages our members can’t get anywhere else”. The 831(b) Institute reiterates its openness to working with the IRS on reform, but stresses that the current rule must be repealed before its effective date to prevent widespread harm to small businesses.
