Captive insurance industry representatives fighting an IRS proposal that would add to their tax burden said they met yesterday with Department of Treasury officials who seemed "genuinely interested" in hearing from them.

The captive group believes the regulatory change the IRS has proposed would undermine their industry.

Richard D. (Dick) Goff, president-elect, Self-Insurance Institute of America Inc., and Cliff Roberti, director of government relations for SIIA, commented after meeting with eight ranking officials from the U.S. Department of Treasury and the Internal Revenue Service in Washington, D.C.

"Both Cliff and I were delighted with the genuine warmness of our reception with these people," Mr. Goff told National Underwriter. "They were nonbureaucratic in mindset. They were very forthcoming. They assured us these new proposed regs were not set in stone and they were genuinely interested in learning from the private sector."

Mr. Goff, chief executive officer of The Taft Companies, a captive management firm in Baltimore, Md., added, "They truly wanted our input, and they were open to our input and asked good questions." He noted that the meeting, which he expected to last 20 minutes, took a full hour and 40 minutes.

While their policy is not to comment on private meetings, Andrew DeSouza, a Treasury spokesman commented, "I will say that there were a lot of issues discussed and it was a constructive meeting, from what I gather."

The IRS proposal, which caught the captive industry off guard, would reverse a longstanding tax treatment of captive insurers and put them on the same footing as self-insureds.

Unlike insurers, self-insureds are unable to deduct a discounted reserve for estimated losses and expenses, whether or not claims have been filed. With no prior hint of its plans, the IRS published its proposals in the Federal Register on Sept. 28.

Mr. Goff said members of Treasury explained that the motivation behind the IRS proposal "was to bring continuity to all industries on the case of consolidation, at the parent level, of all subsidiary companies."

He explained that the insurance industry "has some special exceptions on consolidating of various companies within a group of companies--and in some cases some people feel it is a benefit, which it really isn't."

An example brought up by members of Treasury in the meeting, he said, was that of a large property owner who happens also to be in the construction business as well as the construction supply business. "They wondered why [insurance] should be any different than this property company?"

His answer, he said, was that under the supply side, "their inventory is an asset." But for insurers, "supply, as you will, is a liability, and that's a big distinction as to why insurance companies have this special exemption."

Mr. Goff added that those at the meeting were "very impressed with the fact that more than 50 percent of the states in the U.S. have created enabling legislation of captive insurance companies as an economic development initiative--they did not realize it was so large and had so positively taken root."

He said, "We explained the new regs would have a huge impact on this new thriving industry, domestically, and would push all captive movement back offshore again. And they understood that."

The next step, Mr. Goff said, is to prepare a position paper outlining the effect the proposed regulations would have on the captive industry.

This will be accomplished with "a team of certified public accountants (CPAs) and tax attorneys and respected people within the ART [alternative risk transfer] industry," he said.

The time frame, he noted, is "the sooner the better--this is top priority for us as a SIIA initiative."

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SIIA Reps, Treasury Officials Discuss Tax Proposal

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