Tax Analysts Talks Recent Captive Insurance Memos with Buchanan’s Susan E. Seabrook

In a recent article, Tax Analysts reports on two IRS administrative rulings and what they imply about the IRS’s position on captive insurance companies and its planned guidance on the issue.

As reported in the article, the IRS released a "devoid-of-facts decision" not to rule on whether a taxpayer's captive insurance arrangement providing post-retirement medical benefits qualifies as insurance for federal tax purposes early in August.

The IRS, relying on Rev. Rul. 89-96 for its ruling, released a chief counsel advice (CCA) stating that a set of 10-year excess loss policies do not qualify as insurance because the costs incurred by entities were expected to surpass policy caps, resulting in a lack of risk shifting.

"I think the analysis is a tad confusing," Buchanan Ingersoll & Rooney Tax Shareholder Susan E. Seabrook told the publication. "I don't see Rev. Rul. 89-96 as being applicable guidance for the CCA because Rev. Rul. 89-96 is geared heavily towards timing risk, and the policies in the CCA specify that all claims are going to be paid at the end of the contract, so you clearly know what the timing is going to be."

Noting that understanding the nature of the costs covered by the policies is vital; Seabrook wonders if there is more to the analysis than meets the eye. 

Read the full article: "News Analysis: Recent Captive Insurance Memos Add to Uncertainty" (Tax Analysts, August 19, 2015) Subscription required.