The Internal Revenue Code 831b states that small captive insurance companies may receive up to $1.2
million in premium per year tax-free.
Note: There are several
restrictions on the type of risks covered. Consult your tax advisor
or the code directly for details.
Once a third party risk appraisal is completed and premium
dollars are set, XYZ Company pays $500,000 in premium to an 831b small captive insurance company owned by Mr. C whom also
owns XYZ Company. Premium dollars paid to an 831b captive are received tax-free
as long as the total premium is less than $1.2 million annually.
Mr. C’s captive
must also insure risks of other companies as the guidelines for 831b small captive insurance companies indicate that 30% of
the total premium received should be from non-related parties. Mr. C meets this guideline and works with a group of captives
that have common risks covered within a group format. Using this format Mr. C
and the other captives have accomplished risk sharing which is common practice in the industry. This risk sharing helps to spread the financial impact of claims made by these other companies over several
All insurance companies
are created from tax codes and 831b small captive insurance companies are no different.
An ordinary business is not allowed to take a deduction for dollars set aside for possible claims but an insurance
company is able to do so. As a result, a business is able to establish an insurance
company to set aside fund to self-insure business risks for its parent company.
Options To Remove Excess Captive Funds
Only the investment income made on reserves inside the captive is taxable. The
IRS treats these gains at C-corp rates.
Funds removed from a captive and paid to an individual are taxed at the recipient’s
personal tax rate.
Options exist to avoid
this double taxation.
Integrity Advisors utilizes an exclusive, patent protected technique to help captive owners
efficiently move excess funds out of a captive.
This technique does not fit all captive situations.
For a confidential review of this exit program
contact (866) 399-2908