A proposed regulation by the Internal Revenue Service that would reverse a long-standing tax benefit for captive insurance operations and put them on the same footing as self-insureds has caught the captive industry by surprise.
The move sparked a letter of protest from a state regulator and a captive trade group said it would mobilize to fight the proposal.
The IRS published its proposals in the Federal Register on Sept. 28 with no advance warning. Its notice said that since issuing the regulations that are currently in place, the agency determined it would "no longer invoke the 'economic family theory' in addressing whether captive insurance transactions constituted insurance for federal income tax purposes."
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