The adoption of captive insurance arrangements is on the rise, with middle-market business owners realizing both their risk management and planning benefits — but ambiguity and controversy has kept some business owners and their advisers at bay.
For the past three years, the Internal Revenue Service (IRS) has placed the Section 831(b) small captive structure on its "dirty dozen" list of abusive tax schemes.
This stems from unscrupulous practices set forth by unprofessional captive managers who have led their clients astray by handling the clerical and administrative duties of captive formation, but doing little in the way of verifying whether businesses had bona fide risks that could be funded in a captive insurance affiliate.
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