IRS Loses Captive Insurance Case on Good Taxpayer Facts
3 Pages Posted: 18 Aug 2018
Date Written: November 17, 2014
In 2002 the IRS issued several revenue rulings that established two safe harbor rulings for the appropriate structure of a captive insurance company. Those rulings followed — and were the result of — a long case history that saw taxpayers successfully rebut an IRS argument that a captive insurance company was not a bona fide insurer and therefore was not eligible for deductions related to the paid-in insurance premiums. The IRS losses began in the landmark Humana case, when the court held that insurance premiums paid by brother-sister subsidiaries were deductible. Those losses continued in AMERCO, when the Service unsuccessfully challenged a captive company established by U-Haul International Inc., arguing that Republic Western Insurance Co. was not a viable, stand-alone insurer. The final loss was handed down in UPS, in which the government lost on appeal. For about a decade after the 2002 rulings (until approximately 2010-2011), the Service was relatively quiet regarding captive insurance companies. However, the recent Securitas Holdings case — which followed the Rent-A-Center decision earlier this year — resulted in another loss for the Service in its attempts to challenge captive insurance companies established and operated by larger companies.
Suggested Citation: Suggested Citation