Tax Court denies insurance company status as micro-captive

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September 2017


On August 21, 2017, the U.S. Tax Court in Avrahami v. Commissioner, 149 T.C. No. 7 (2017), concluded that a small captive "insurance company" did not qualify as an insurance company for Federal income tax purposes because its contracts did not distribute risk and were not insurance in the commonly accepted sense.  As a result, the company was not entitled to be taxed as a domestic corporation under section 953(d) or to exclude underwriting income from taxable income under section 831(b), and the policyholders were not entitled to deduct amounts paid to the company as premiums.  The case demonstrates the Internal Revenue Service (IRS) resolve to challenge insurance company status of small captives.

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Mark S. Smith

Managing Director, Tax Services, PwC US

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