By Sandra Fenters
On March 20th, just four days after the National Covid-19 Emergency was declared, The IRS sent 150,000 letters to captive insurance companies who take the 831(b) election.
This memo was clearly designed to ignite fear in the minds of captive insurance owners. It’s yet another scare tactic in the Services’ bullying efforts to induce doubt about the health and viability of captive insurance arrangements.
The timing for the IRS could not have been poorer. Despite presenting massive challenges to the global economy, the coronavirus pandemic may well be captive insurance companies’ finest hour. Last week a number of publications highlighted that high severity, low-frequency events like Covid-19 are when captive insurance shows its’ real value in protecting America’s small and mid-sized businesses from disaster.
SIIA Expresses Concerns about Ill-Timed Letters
The Self-Insurance Institute of America (SIIA) wrote to Treasury and IRS on March 30, calling the letters “insensitive and draconian.”
Ryan Work, SIIA VP of Government Relations who leads the SIIA Advocacy Committee on which I am very active, requested that the IRS reconsider its letter and its timeframes given the crisis.
Given the current crisis, combined with the timing and the burden being placed on small- and medium-sized businesses, the IRS should suspend further audit activity until the National COVID-19 Emergency Declaration is withdrawn so as to allow businesses operating captive insurance to mitigate the risks that Congress and the Tax Code allow them to appropriately address. Furthermore, while the deadline is suspended, the overall need for the IRS Letter itself should be reconsidered and information clarified as it is possible for the IRS to deduce the answers to its own questions from information that has already been reported by taxpayers who have complied with the requirement to file Form 8886 over the past two years.
Here is a link to the full SIIA letter to Treasury Secretary Mnuchin and IRS Commissioner Rettig.
We are hopeful that captive insurance companies play a pivotal role in covering losses in the coming months of the pandemic and that the IRS recognizes their critical and legitimate role in mitigating risk not properly covered by other insurance products.
There may be a lot going on in Washington these days…but that does not slow down SIIA’s advocacy work to better educate and inform lawmakers about captiveinsurance and its’ many benefits.
In November, my #SIIA colleagues and I met with Pennsylvania Senator Bob Casey’s Chief of Staff, Kristen Gentile, as well as Representatives Trey Hollingsworth (R-IN) who is on House Financial Services Committee, and U.S. Congressman James Comer (R-KY).
In February, I will travel to Miami for an event with Senator Marco Rubio and Julie McPeak, former Insurance Commissioner of Tennessee.
Advocacy work takes time, effort, financial resources, and involves many individual meetings. My SIIAAdvocacy colleagues and I are committed to the journey.
By Sandra Fenters
Over the last 5 years, we have seen a whirl wind of activity around captive insurance in Washington. Some very positive; some less so.
Consider the following:
- Farm mutuals received a boost with the 2015 PATH (Protecting Americans from Tax Hikes) Act.
- In the initial versions, small business captives (taking the 831b election) were originally omitted, but with some lobbying, they were ultimately included in the final bill. Consequently, these captives enjoyed a healthy increase in tax deductibility limits of insurance premiums; this was a big boost for small business captives, and it looked like the captive market for small businesses would boom.
- The Treasury and IRS had seen abuses over the years with select captive plans and began to cast a suspicious eye on many existing captive policies. The IRS issued a series of onerous Notices (for example: 2016-66), ramped up audits and filed a number of lawsuits to target broadly any possible abuses.
- Part of the challenge was that Congress did not specify much of the detail of the new rules which led to industry and government confusion.
- So despite the gains for small business captives (taking the 831b election) in 2015, an aggressive IRS has muted much of the gains.
Helping to Steer the Policies
With this uncertainty, SIIA (The Self-Insured Institute of America) and its Captive Advocacy Team have been active for the last few years to help shape the legislation and policies related to small business captives utilizing the small captive tax election.
I have been active on the Captive Advocacy Team since 2015 and have made over a dozen trips to DC to support these efforts. We focus on informing the legislators about the benefits of captives and are aware of the onerous reporting requirements.
My most recent trip was this Spring when colleagues and I met with the legislative teams of Richard Burr (NC), PatToomey (PA) and David Perdue (GA). During the blitz, 13 SIIA Advocacy Team members met with 38 legislative teams.
SIIA Advocacy Going Forward
Ryan Work, Vice President, Government Relations of SIIA, leads this governmental advocacy program and comments that after a few years of a more reactive mindset of ‘putting out fires,’ the Team plans to be more proactive in its lobbying efforts in Washington.
My next scheduled visit is November 20, 2019.
Please let me know if you have any questions or input on this program.