Owners of single-parent captive insurance companies have long had ongoing battles with the IRS over the deductibility of insurance liabilities, with current edge going to the captive owners. That could be about to change in newly proposed IRS rules take effect (see here, here and here). While it is clearly too early to accurately predict the outcome, comments from some experts include the following:
- there will be no tax advantages to establishing a captive arrangement over the use of simple self-insurance
- there's worry that the proposed IRS rules changes could make it more favorable for parent companies to set up their captives in Bermuda or the Cayman Islands
- this will force many companies who are seeking to achieve tax benefi ts from captive insurance companies to shift to an entirely offshore approach for their captives or to take other steps to avoid the effects of the changes
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