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Section 831(b) Micro-Captives – Worth Considering, but Proceed with Caution

 

There continues to be a buzz about Section 831(b) micro captives as having multiple benefits for companies that make the election and own a captive insurance company that meets IRS requirements.

Potential customers are attracted to the idea of establishing  an 831(b) captive because of the substantial potential benefits, including :

However, there are qualifiers and pitfalls that you should consider before you decide whether this strategy is a fit for your company:

A word of caution:  Some aggressive captive providers have proliferated recently who are ignoring common sense risk management and taxation issues and are putting their clients at risk.   Historically, many good business ideas that have tax benefits have been abused and distorted by over-zealous promoters. The end result is often a complete closure of the benefit by Congress or the IRS. We hope that the few “bad advisors” in the 831(b) space do not cause the same result with this beneficial risk management and financial planning tool.

To be on the safe side, the captive should exist and be viable independent of the tax election.  It should exist first and foremost for insurance reasons, not just for tax reasons. If the captive is structured in this manner and meets the qualifications to make an 831(b) election it should withstand any scrutiny from the IRS.

For more information contact:

Ed Kushlis
Senior Vice President
Insurance Associates, a Marsh & McLennan Agency LLC Company
ekushlis@insassoc.com
301-838-8830