The Internal Revenue Service last month revived its 2005 reassessment of tax treatment for cell captives, determining that it will test risk shifting and risk distribution on a cell-by-cell basis, and giving notice that it currently plans to treat each qualifying cell as a separate insurance company.

The IRS issued Revenue Ruling 2008-8, which establishes how insurance will be measured, and whether the premiums are deductible by the insured. It also issued Notice 2008-19, in which the IRS asked for comments on the harder question of whether and how to treat the insurer side, and stated its current views.

Rev. Rul. 2008-8 establishes that the determination of whether insurance exists in a cell will be made on an individual basis, independent of the qualification of the other cells as insurance, explained Charles "Chaz" Lavelle, an attorney with Greenebaum Doll & McDonald PLLC in Louisville, Ky. If there is insurance in the cell, then the insureds may deduct the premiums paid, he noted.

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