Hunton Insurance Recovery Blog

Earlier this month, the US Tax Court agreed with an IRS determination against favorable tax treatment of premium and dividend payments using a foreign captive. In the decision, the court ruled that a financial services company could not deduct millions of business expenses for purported insurance coverage through an affiliate captive company or take advantage of preferential rates for dividends paid by the captive to the company’s shareholders. While properly organized and administered captives can take advantage of numerous features not available through the traditional insurance market, the ruling highlights challenges companies may face if a captive is not implemented correctly.

The IRS recently filed a petition to enforce summonses issued to investigate tax liability stemming from a business’s involvement in a captive insurance transaction. While captives can have many advantages—ranging from increased control, reduced costs, and favorable tax benefits—the IRS petition underscores the importance of structuring and implementing captives in accordance with all applicable laws.

Hunton Andrews Kurth LLP insurance partner, Andrea DeField, was recently interviewed by Courtney DuChene for Risk & Insurance magazine for their article, Cyber Captives 101: Is Self-Insuring the Right Risk Mitigation Choice for Your Business? As we’ve discussed previously on the blog, the cyber insurance market has become increasingly difficult, see here, here, here, and here, and captive insurance may present a potential solution, see here. However, as DeField notes in the article, “If you’re going to go through this whole time-intensive, labor-intensive ...

As the use of captive insurance companies continues to grow, one issue businesses may face is whether to incorporate cells within a captive cell program. In a recent article in Business Law Today, Hunton attorneys Lorie Masters, Patrick McDermott, and Latosha Ellis address some of the relevant considerations.