Changes in the pipeline with the spotlight on 831(b) elections

16 April, 2015

by Daniel Message, Vice President – Head of Latin America, R&Q Quest Management Services Limited (Bermuda)

In recent years there has been a significant proliferation in the use of US Internal Revenue Code provision 831(b) in the creation of small insurance companies – often referred to as ‘micro captives’. Whilst in principle these are a legitimate, bona-fide structure with the potential for very real benefits, they are coming under increasing scrutiny from the IRS. With the 2014 tax filing season well underway, Washington has stepped up efforts to clamp down on potential abuses which could result in lost tax dollars for the US Treasury.

At the same time, proposals are being put forward by the Joint Committee on Taxation to alter the criteria which would need to be satisfied to qualify for the 831(b) election. This paper gives a broad overview of what an 831(b) is, and move on to discuss some of the key costs and benefits, before interpreting the proposed changes.