The Internal Revenue Service (IRS) is attempting to crack down on the practice of establishing captive insurance companies to reduce tax bills. Over the last decade these captive insurance companies have become popular with affluent Americans because the tax code permits premiums of up to $1.2 million a year to be tax-free. The IRS is concerned that there are many small captive insurance companies that are being set up to insure for risks that are unlikely to happen, and that they are simply there to accumulate premiums and pay out dividends to the owners. “How many captives have exploited the tax rules is hard to know, because captives are regulated by individual states — as is any insurance company — and some, as in the Avrahami case, have incorporated themselves offshore, which gives them an added layer of secrecy.”
See Paul Sullivan, Small, Private Insurers Face Increasing Scrutiny on Avoided Taxes, The New York Times, January 15, 2016.
Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.
