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IRS Ruling Gives Captives Green Light To Speed Ahead

For years, the Internal Revenue Service has given the fish eye to deductions for insurance premiums paid by companies to transfer risks to insurers they own. So it was with much relief that the risk management community heard that the IRS will no longer arbitrarily challenge deductions for such transactions.

In the past, the IRS would sometimes take insurance buyers to court solely because the premiums being paid were kept in the “family”–that is, if the buyer owned the insurer, or if both the buyer and the insurer were owned by the same corporate parent. The rationale was that under such deals, there was no legitimate risk shifting because the exposure was maintained inside a single corporate entity–sort of like taking money from your left pants pocket and putting it into your right.

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