Amendments to S. 831(b) were included in the Tax Increase Prevention and Real Estate Investment Act of 2015 (SEC.262 H.R. 34) that was passed earlier this week. Changes to the Code have been pushed for by both captive owners and their advisors as well as the Internal Revenue Service for some time now. As the existing code was established in 1986, captive professionals have been looking to increase the premium limits to account for the ever increasing costs associated with their respective risks. The Service has goals of eliminating tax fraud and the perceived (and sometimes real) abuse of the election that was occurring via estate planning. As other captive professionals have noted:
This influx of non-insurance professionals [into the captive world] has potentially opened taxpayers up to allegations that they are not forming a captive with the commensurate subjective intent to form and run an insurance company.*
The new legislative change accomplishes both items.
Beginning in taxable years after December 31, 2016 the maximum election will change from $1,200,000 to $2,200,000. The maximum election will also be adjusted for inflation in subsequent years.
Accompanying this increase is also language that redefines the eligibility requirements for captives seeking to make the 831(b) election. This language accomplishes the previously mentioned goal of the Service by making significant changes to the ownership requirements, attribution rules and limiting the percentage of net written premiums attributable to any one policyholder.
A copy of the amendment can be requested by clicking here.
Contact us at firstname.lastname@example.org, by calling 800-563-1871, or by completing the form below to discuss the details surrounding these changes and how you can enhance your risk management strategy with the now $2,200,000 election.
*Beckett Cantley and Hale Stewart, Captive Insurance Companies and the Business Purpose Doctrine, Captive Visions Magazine
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