CIC Services is calling on Congress to overturn a recently finalized IRS rule that could impact the ability of small and mid-sized businesses to manage risk through captive insurance.
The regulation, which was finalized in January 2024, imposes restrictions on IRC Section 831(b), a provision that has allowed businesses to structure insurance coverage affordably and efficiently.
The rule takes effect as businesses continue to face rising commercial insurance premiums, higher deductibles, and reduced coverage options. CIC Services warns that if the regulation remains in place, many businesses may lose access to viable alternatives for financial risk protection.
"Congress has a clear opportunity to act now, overturn this rule, and protect businesses from unnecessary financial hardship,” Sean King, CEO of CIC Services says.
Congress enacted the 831(b) election nearly 40 years ago to provide small and mid-sized businesses with a risk management tool, but King said that the new IRS rule undermines that purpose.
Earlier this year, the US Department of the Treasury and the IRS finalized regulations under Internal Revenue Code Section 831(b), targeting micro-captive insurance arrangements. These regulations aim to curb perceived tax abuses while acknowledging industry concerns.
According to critics of the new regulations, the new reporting requirements may impose significant compliance costs on small and mid-sized businesses, potentially deterring them from utilizing captive insurance solutions for legitimate risk management purposes.
Some industry stakeholders also argue that the regulations encroach upon areas traditionally governed by state insurance laws, raising questions about federal overreach and the potential undermining of state regulatory authority.
A report notes that the regulations were introduced to address the misuse of micro-captive insurance companies as tax shelters.
Historically, some entities have leveraged Section 831(b) elections to exclude up to $2.85 million of underwriting income from federal taxation, without engaging in genuine insurance activities. The IRS has identified such arrangements as potentially abusive, leading to increased scrutiny and regulatory action.
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