Ruling allows revocation of microcaptive status

Tax Hot Topics newsletterThe IRS consented to a taxpayer request to revoke the election for a captive insurance company to be taxed as a “microcaptive” under Section 831(b).

An insurance company that writes no more than $2.2 million of premium in a year is eligible to make such election. Once the election is made, the insurance company is only taxable on its investment income (and not premium paid) but such election is only revocable with consent of the IRS.

Although the statute provides for revocation of such election, there have only been a handful of such requests granted since 1988, when the statutory language was added to Section 831. The key representations to obtaining IRS consent appear to be the captive not having net operating losses and pledging to not re-elect microcaptive status for at least five years after relief is granted.

Greg Fairbanks
Managing Director
Washington National Tax Office
T +1 202 521 1503
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