BGD Senior Partner Chaz Lavelle Discusses Latest Microcaptives Changes with Business Insurance
Bingham Greenebaum Doll LLP senior partner Charles J. Lavelle recently discussed the change designed to curb abuses of microcaptives that could actually lead more small and midsize firms to use them with Business Insurance.
Under a new federal law signed by President Obama last year, microcaptives choosing to elect Section 831(b) of the U.S. Tax Code will avoid taxation on up to $2.2 million of income yearly in comparison to the current $1.2 million limit. This change was meant to address the predominant issue of microcaptive abuse such as identity theft and phishing.
However, opinions are mixed as to how businesses will react to the changes and whether or not they will choose to elect 831(b) more often or not. According to Lavelle, traditional captive users with premiums up to $2.2 million will “seriously consider making the election,” but that will not necessarily result in a switch for all users. For example, Lavelle explains, users whose claims fluctuate substantially may be hesitant to make the election due to the possibility of an unfavorable year that could result in an underwriting loss.
Although there may be hesitation at first, it is predicted that electing Section 831(b) will become more common over time according to the publication. Many have stated that this change is a positive one with several potential benefits, including helping captives be viewed in a positive light, reducing microcaptive abuse and providing specific and effective risk management.
Lavelle is a member of the firm’s Tax and Employee Benefits practice group. He focuses his practice in the areas of federal tax controversy as well as formation, operation, and taxation of captive insurance companies. Lavelle also counsels clients in tax planning, especially for captive insurance companies and their owners. He is a frequent speaker on a variety of topics related to captive insurance.