Legal experts have warned against IRS scrutiny and cascading tax issues in an attempt to educate captive owners and managers.
Bruce Wright of Sutherland, Asbill & Brennan LLP and Tom Jones of McDermott Will & Emery LLP used the closing slot of the Captive Insurance Companies Association International Conference in Scottsdale, Arizona, to warn industry professionals about some of the more complex tax issues for captives.
Cascading tax, which can lead to reinsurance transactions between US entities being taxed multiple times, was raised as a key issue that is likely to affect the captive industry.
Other points, such as the IRS's increased scrutiny regarding the nature of risks ceded, provisions in pooling agreements and the details of arm's length considerations for 831(b) companies, were also highlighted as being likely to affect the wider industry.
Wright and Jones cited examples such as the recent Rent-A-Center and Validus cases, and the proposed New York reforms for captives in order to illustrate the issues.
