In early 2008, the captive insurance community ended a suspenseful roller coaster ride when the Internal Revenue Service withdrew regulations that would have limited tax benefits for some facilities. While less dramatic, other IRS activities in 2008 that are still on the horizon may help solidify some issues in 2009.
In 2009, the IRS plans to finalize rules on the taxation of cells and cell companies. The IRS also plans to issue a "Revenue Ruling, providing guidance on reinsurance agreements entered into with a single ceding company." The context of this ruling is the IRS view that insurance does not exist if a company insures only one insured.
This could be important because many captives reinsure a single policy from a commercial fronting company. The industry assumes the ruling will not be a problem, and that the IRS will confirm the view that a single reinsurance policy will qualify as insurance for tax purposes, if direct insurance of the operating group would have been insurance for tax purposes.
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