USA | Takeaways from the Tax Court's First Micro-Captive Insurance Ruling

Lexolology | 6 Oct 2017


  • The U.S. Tax Court recently ruled in Avrahami v. Commissioner, the first litigated Tax Court case involving an 831(b) captive insurance company.
  • The Tax Court held that two of the key factors that define "insurance" for federal income tax purpose risk distribution and meeting commonly accepted notions of insurance – were not satisfied. Therefore, the risk purported to be insured was deemed not to be insurance.
  • On its face, the long-awaited Tax Court opinion was a victory for the IRS, although the Court seemed, at least implicitly, to approve of the use of risk pools. But taxpayers and their advisors should review a few key action items in regards to their captive insurance arrangements.