Source: https://www.captive.com/captive-wire/taxation/page/2
Timestamp: 2019-04-18 10:22:10+00:00

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A.M. Best said that the impact of tax reform is generally a positive for US-domiciled captives and a mixed bag for offshore captive insurance companies, though in some cases, it is a positive for offshore captives that have made the section 953(d) election under the Internal Revenue Code.
Capstone: "Does Captive Insurance Exist after the 'Reserve' Decision?"
Capstone Associated Services, Ltd., provides additional commentary about the Reserve Mech. Corp. v. Commissioner case in a piece titled, "Does Captive Insurance Exist after the 'Reserve' Decision?"
As a follow-up to our previous posts on "Reserve Mech. Corp. v. Commissioner," Captive.com recently touched base with a number of captive insurance industry professionals to share their insights on the Tax Court's decision. Here are their thoughts.
The Tax Court of New Jersey recently rendered an interesting decision regarding direct placement taxes. Eversheds Sutherland discusses Johnson & Johnson v. Director, Division of Taxation and Commissioner, Department of Banking and Insurance.
On June 18, 2018, the US Tax Court issued its opinion in Reserve Mechanical Corp. v. Commissioner, holding for the IRS. Eversheds Sutherland says that the facts of the case appear substantially similar to LTR 201609008, issued by the IRS in 2016.
According to Bruce Wright of Eversheds Sutherland, risk pools in captives allow organizations to spread risk and provide for a tax benefit. Risk pools provide unrelated risk to a captive insurer so the parent corporation can take a deduction for premium paid to the captive using insurance accounting.
The Washington State Office of the Insurance Commissioner has ordered an Arizona captive owned by Microsoft that provides coverage to the Microsoft group of companies to cease and desist transacting insurance business in the state and soliciting and writing insurance coverage for Washington insureds.
On August 21, 2017, the US Tax Court decided two companion cases, Avrahami v. Commissioner and Feedback Insurance Company v. Commissioner, involving various issues surrounding the formation and operation of a captive insurance company in Saint Kitts. Bruce Wright of Eversheds Sutherland reviews the federal analysis by the Tax Court.
The Consolidated Appropriations Act of 2018 was enacted on March 23, 2018, and included amendments to IRC section 831(b). Most importantly, the Act clarifies that for purposes of the first diversification test of section 831(b), the term "policyholder" refers to the direct insured under a policy and not to a reinsured.
For the fourth consecutive year, "abusive micro-captives" make an appearance on the Internal Revenue Service (IRS) annual "Dirty Dozen" list of tax scams, reflected in IR-2018-62. In the 2018 version, the IRS warns taxpayers about the abuse of micro-captives and includes commentary on the IRS victory in Avrahami v. Commissioner.
Avrahami Panel: "A Captive Is Not a Piggy Bank"
In the wake of the Avrahami decision, micro-captives have found themselves on the Internal Revenue Service 2018 "Dirty Dozen" tax scam list for the fourth year in a row. An Avrahami panel at the Captive Insurance Companies Association conference provided beneficial insights for small captive insurers.
The end of 2017 delivered uncertain tidings concerning what effect the Tax Cuts and Jobs Act would have on the captive insurance industry. While the law affects larger captive insurers, changes are less significant for smaller captives. Management Services International provides its view on the tax law and small captive insurance companies.
The Base Erosion Anti-Abuse Tax imposes a 10 percent minimum tax on corporate US taxpayers. Premium payments made by US taxpayers to their non-US captive insurers and loss payments made by US captive insurers to their non-US insureds are among the amounts characterized as base erosion payments.
US tax reforms are credit negative for the Bermuda re/insurance market, Fitch Ratings said. The cut in the US corporate tax rate and a new tax on premiums ceded by US insurers to foreign reinsurers will reduce the tax advantage of reinsuring US risks to Bermuda and other international reinsurers.
In response to the Tax Cuts and Jobs Act signed into law by President Donald Trump, RIMS has published a "Legislative Review" on the law's Base Erosion and Anti-Abuse Tax provisions, which will levy a 10 percent tax on transactions with foreign affiliates and impact some insurance and reinsurance programs.
The Internal Revenue Service's first annual inflation adjustment for the Section 831(b) tax election has increased the premium limit for micro-captives to $2.3 million. Effective in 2017, H.R. 34 increased the maximum premium revenue allowable from $1.2 million to $2.2 million, allowing for inflation adjustments in subsequent years.
Following the passage of the Tax Cuts and Jobs Act by the US Congress, Captive.com met with Bruce Wright of Eversheds Sutherland to document his take on the primary impacts of the tax law on the captive insurance industry. According to Mr. Wright, a number of the law's provisions may affect captives.
Avrahami Motion for Reconsideration: "No Such Luck"
On September 21, 2017, in a motion for reconsideration, the Avrahamis asked Judge Mark V. Holmes to reconsider his August 21, 2017, decision in "Avrahami v. Comm'r and Feedback Ins. Co., Ltd. v. Comm'r," 149 T.C. 7 (2017). Responding to the motion, the judge issued an order on November 14, 2017, that denied the motion.
On November 2, 2017, just over 1 year to the day after the Internal Revenue Service (IRS) issued Notice 2016–66, Judge Travis R. McDonough dismissed the CIC Services, LLC, and Ryan, LLC, lawsuit that sought to enjoin the IRS from enforcing the notice.
Eversheds Sutherland provides its observations on the Republican unified tax framework. The framework is intended to serve as a "template" for the tax-writing committees, the House Ways and Means Committee, and the Senate Finance Committee to draft tax reform legislation.

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