IRS Withdraws Proposed Tax Rule Change Affecting Captives
In a complete turnabout, the Internal Revenue Service had scrapped a proposed rule that would have stripped a key tax break utilized by hundreds of captive insurance companies.
The IRS announced that it is withdrawing the rule it proposed last September that would have taken away a favorable tax rule for sponsors that use their captives to fund risks of various corporate affiliates and that file a consolidated tax return covering the affiliates and the captive.
Captives under the proposed IRS rule, would have no longer would have been allowed to take an immediate tax deduction at the time reserves are established. Instead, tax deductions only would have been allowed at the time claims are paid.
Captive experts warned that such a change in the timing of tax deductions would have been extraordinary costly, making captive programs much less attractive financially and perhaps leading captive sponsors to move their insurance subsidiaries offshore.
Published on February 21, 2008
Are you retail Agent Looking for a Quote?