IRS Backs Down On Rules Change
That Would Have Harmed
Vermont’s Captive Insurance Industry
(WEDNESDAY, Feb. 20) – U.S. Senator Patrick Leahy (D-Vt.) and U.S.
Representative Peter Welch (D-Vt.) announced Wednesday that the Internal
Revenue Service (IRS) has dropped plans to change the way Vermont’s
captive insurance companies are taxed. Both Leahy and Welch sent
letters asking the IRS to withdraw the proposed regulation.
Leahy said, “IRS officials listened, and they were willing to pull back
an overly broad rule change that did not make sense for self-insuring
companies. Peter and I both made it clear to the IRS that this
regulation would have needlessly damaged Vermont’s economy and could
lead the captive insurance industry to leave the United States. For
more than 25 years, these firms have been an economic engine for Vermont
by creating hundreds of new jobs and business opportunities. This rule
change offered no good reason to endanger that success.”
Welch said, “I am thrilled common sense prevailed and the IRS has
yielded to our sound reason. This is a crucial win for Vermont business
and for well-paying Vermont jobs.”
The proposed IRS regulation would have changed the taxation of captive
insurance companies – which are a form of self-insurance sometimes used
by large firms – that file joint tax returns for their consolidated
affiliates. If a captive insurance company insures the risk of another
member of the consolidated group, the rule change would have required
that the transaction be recorded as if the two companies were divisions
of a single entity, which is the treatment applied to non-insurance
companies. That change would have prevented captive insurance companies
from using the reserve accounting methodology that state insurance
regulators require, and that applies for tax purposes to insurance
companies that are not in consolidated groups.
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