Middle Market Captive Opportunities under IRC Section 831(b)
- Under IRC Section 162, premium payments made by the operating company allow the client to further manage business risk and should be tax-deductible as ordinary and necessary business expenses
- Captives which make an annual election under IRC Section 831(b) are tax-exempt under the annual $1.2MM premium test
- Captive underwriting profits and surplus accumulation are also tax-exempt; only investment income is taxable annually
- A Captive elects to be taxed as a C-Corporation
- Distributions are treated as Qualifying Dividends
- Liquidation of a Captive is treated as a Long-Term Capital Gain