IRC Section 953(d) allows a controlled foreign corporation (CFC) engaged in the insurance business (an electing corporation) to elect to be treated as a U.S. corporation for purposes of imposing United States income tax. An electing corporation agrees to compute its U.S. income tax liability as if it were a [...]
The special tax treatment under IRC 831(b) is not automatic. The reinsurance company must file an 831(b) election with its initial income tax return (Form 1120PC) to receive the 831(b) tax treatment. The Insurance Manager will oversee the process for making this election. The election need only be made once. [...]
New ownerships rules were introduced in IRC section 831 in December 2015 and made effective January 1, 2017. Under the new ownership rules, there are limitations when family members are involved in ownership. In a nutshell, if family members are involved in ownership of the captive, then the ownership of [...]
Premiums are based on risk. Premiums are never based on the net income of the insured company. Consequently, premiums cannot be altered late in the tax year of the insured company based on its net income projections.
There are no direct tax implications regarding ownership since any legitimate individual or corporate entity can own the company. As in any multi-company structure, the taxpayer should be aware of potential opportunities and consequences relative to ownership. From an insurance premium deductibility perspective, there are certain corporate structures to be [...]
A reinsurance company is required to file an annual federal income tax return using Form 1120PC. This is a specialized return for insurance companies. The election for the special tax treatment under Internal Revenue Code 831(b) must be made in the initial 1120PC filing.
Subchapter L of the Internal Revenue Code governs the taxation of reinsurance companies. The Code provides incentives that allow insurance companies to accumulate reserves for the payment of future claims. For example, insurance premiums of qualifying companies are not counted in taxable income. The insured company receives a tax deduction [...]
If an insurance or reinsurance company qualifies for federal taxation under IRC section 831(b), then the only federal income tax it will pay is a tax on investment income. Underwriting profits are not taxed. This allows the insurer to develop its insurance reserves.
A reinsurance company seeking the special tax treatment of Internal Revenue Code section 831(b) cannot receive more than $1.2 million of annual premium in 2016 or $2.2 million of annual premium beginning in 2017 (indexed for inflation). The $1.2 million limit through 2016 was first made effective in 1986 and [...]