Relief as IRS withdraws threat to US Captives
–21 February 2008
The US captive sector is celebrating this week after the IRS dramatically withdrew its proposal to end tax deductions for captive insurance companies.
The news comes as representatives of the captive sector were preparing to spell out their objections officially at a meeting with the IRS, planned for February 29.
A coalition had been set up by two captive associations, CICA and the Vermont Captive Insurance Association (VCIA), to fight the proposal. If it had gone ahead, the change would have ended the allowance of deductions for loss reserves by single-parent captive insurance companies that file income tax returns on a consolidated basis with their parent corporation. The coalition argued that it would seriously threaten the growing number of US captive domiciles.
Opposition to the proposal also came from the Self Insurance Institute of America, a national trade association representing companies involved in self-insurance and alternative risk transfer, which argued that it would simply cause captive insurance companies to relocate to offshore domiciles such as Bermuda and the Cayman Islands.
And the change was opposed by Vermont’s congressional delegation and Governor Jim Douglas.
In a written statement, US Senator Jim Leahy said: “IRS officials listened, and they were willing to pull back an overly broad rule change that did not make sense for self-insuring companies.”
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