October 3, 2014

It was recently discovered that the IRS finally took action on investigations of managers in small insurance companies. This has spiraled into the usage of “promoter audits” of such managers, leading in some cases to subpoenas demanding information about captive insurance companies.

The majority of the subpoenas are interested in details about the risk pools and how claims are paid and premiums are calculated, but they are also asking for marketing materials. These materials may be used to determine whether the captive was being used properly or whether it was simply being used to avoid taxes. There are some situations where captives just don’t work well, but there are other situations in which captives fill an important need.

If you’re using a captive insurance company or if you’re thinking about knowing one, risk management is crucial for structuring and reviewing. Knowing what to expect and knowing where the risks are gives you some insight into whether the captive is the appropriate vehicle for you. You should always talk to experienced tax attorneys when you’re using a captive or other complex strategy to help you manage risk. If you believe that you are being investigated or if you would like to discuss the opportunities of using a captive insurance company, reach out to our offices. Request an appointment through email at info@lawesq.net or over the phone 732-521-9455.

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