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Chaz Lavelle Discusses Recently Proposed Tax Extenders Bill Potential Impact on Captive Insurance Companies


Bingham Greenebaum Doll LLP partner Charles J. Lavelle was quoted in a recent issue of State Tax Notes concerning the tax extenders bill passed by Congress that would bring significant changes to the taxation of small insurance companies. The high audit rates of these insurance companies demonstrate the attention the IRS is paying to what it views as potential abuses by unscrupulous tax advisers, according to the publication.

The Protecting Americans from Tax Hikes (PATH) Act of 2015 proposes to rework section 831(b), which now provides an election for property and casualty insurance companies that received less than $1.2 million in premiums to recognize only investment income, in lieu of broader income definition of section 832.

Lavelle says this new legislation, which if enacted will be effective starting in 2017, would do the following three things:

  1. Raise the 831(b) premiums limit;
  2. Address mutual or group captives’ ability to qualify for section 831(b); and
  3. Address Congress’s concern with estate planning.

The publication says the premiums allowed under section 831(b) would increase from $1.2 million to $2.2 million and would be subject to inflation for the first time since 1986. There would also be a new diversification requirement.

“I think it will be interesting to see if the IRS audits with the same intensity after this legislation,” Lavelle said. He said the next year will provide practitioners an opportunity to learn more about Congress’s thought process and how the IRS is planning on implementing the law.

Tax Analysts, founded in 1970 as a nonprofit organization, is a leading provider of tax news and analysis for the global community. Visit their website, or call 1-800-955-3444, to learn more and request full access to State Tax Notes and other documents.

To learn more about Charles J. Lavelle and his practice, please visit his profile.


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