11 May 2015
Reporter: Stephen Durham

CICA responds to IRS definition

The Captive Insurance Companies Association (CICA) has submitted a response to the Internal Revenue Service (IRS) in objection to the proposed definition of “active conduct” in its Exception from Passive Income for Certain Foreign Companies.

Consequently, CICA has requested a public hearing to resolve the matter.

“As currently drafted, the language would not allow an insurance company to operate through the utilisation of independent contractors or the officers and employees of subsidiaries, which is contrary to the manner in which thousands of captive insurers operate and to current IRS practice,” explained Dennis Harwick, CICA’s president.

CICA’s response cited Rev. Rul. 2002-89, 2002-2 C.B. 984, which says an insurance company “may perform all necessary administrative tasks, or it may outsource those tasks at prevailing commercial market rates.”

The association also questioned the need for the proposed regulation in light of the existing statutory authority to address the level of capital necessary to conduct an insurance business, citing existing provisions that require that more than half the insurance company’s business be from insurance and reinsurance.

The proposed regulation was issued by the IRS in late-April 2015.

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