Current Captive Insurance Tax Issues Demystified

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As the captive insurance sector continues to grow in domiciles, numbers, volume, and lines of self-insurance, so has IRS and state tax agency scrutiny.  This session is designed to inform participants of the details of the most commonly raised captive tax issues.   

In particular, among topics discussed will be:
• How taxation drives the onshore/offshore captive domicile (and onshore tax election) decision.
• Focus on the evolving definition of adequate risk distribution – recent cases, rulings and tax audit experience.
• Use of risk pools to generate unrelated risk – what works and what doesn’t.
• Parsing the IRS gray line between “insurance risks” (eligible for tax advantages) and “business risks” (excluded from tax advantages).
• Fundamentals of taxation of retrospective insurance and loss portfolio transfers.
• Special tax advantages for micro-captives qualifying under IRC Sec. 831(b).
• Update on how FATCA will apply to offshore captives.
• Brief overview of key state tax issues:  the federal Dodd-Frank Act impact on direct placement tax; states attempts to subject captives to their income tax; and taxpayers ability to take a non-insurance position.

Educational Objectives
• Enhance and refine your captive structuring decisions
• Understand how FATCA will apply to offshore captives
• Know how to prepare for an eventual tax audit of the captive and/or its owners.   Knowledge indicates knowledge gained and applied in the structuring of a captive program minimizes or in many cases eliminates the captive program’s becoming a target in a tax audit.



Thomas M. Jones is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  He focuses his practice on federal and state tax, insurance regulatory and legal matters concerning captive insurance and other alternatives to commercial insurance.  He works with multinational corporations, private business, taxable and exempt health care providers, trade associations, joint ventures and enterprises of all sizes.

Tom has extensive transactional experience in all major U.S. and offshore captive insurance jurisdictions, including Arizona, the District of Columbia, Hawaii, South Carolina, the U.S. Virgin Islands and Vermont, as well as Barbados, Bermuda, the British Virgin Islands and the Cayman Islands.

Tom is a member of the bar of the State of Illinois, the American Bar Association, the Chicago Bar Association and the International Fiscal Association.  He is a frequent guest speaker at international seminars and conferences, making numerous offshore and onshore presentations on captive insurance and related topics.

In 2008, the Captive Insurance Companies Association (CICA) presented Tom with its Distinguished Service Award.  Each year CICA selects the individual making the most significant contribution to the captive industry.  Tom also was honored by the Vermont Captive Insurance Association (VCIA) as the recipient of its 2005 Industry Service Award.  In 2001, Tom was one of three recipients of a special recognition award for captive insurance expertise bestowed by the Cayman Islands Government.  He has served as corporate legal advisor to the New York World Trade Center Captive since 2004.  Tom is ranked by Captive Review Magazine as #2 on its 2012 “Power 50” list of the most influential people in the captive industry globally. He is also recognized by Chambers USA and The Legal 500 United States as a leading captive insurance lawyer.