IRS Torpedoes: Results of Over a Decade of Promoter Shenanigans in 831(b) Captive Insurance

Abstract

More than a decade ago, tax promoters and life insurance agents seized upon a little-known provision of the Internal Revenue Code (“IRC”). Section 831(b) had been around for decades and, despite increased exposure after the terrorist attacks of September 11, 2001, few taxpayers had ever heard of a Captive Insurance Company (“CIC”). Over the course of the last ten years plus, promoters ran roughshod over the judicial doctrines of economic substance (now codified) and business purpose. They convinced taxpayers that a lack of Internal Revenue Service (“IRS”) audit equaled compliant planning. The IRS complained of the abuses. Statutory and regulatory changes, among other IRS actions followed (described below). The IRS loaded the torpedo tubes. This article focuses on the history of Captive Insurance compliance matters and views current IRS attacks through the lens of articles previously published across the country. These articles have been designed to provide conscientious advisors reliable case law, code and statutory analysis, and compliance considerations for clients. The information presented more fully in each of the articles herein comes in response to the mass marketing by promoters of Section 831(b) CICs.