According to the Journal of Accountancy, The Tax Court issued a ruling which held that an insurance arrangement involving a microcaptive insurance company, family-owned manufacturing companies, and fronting carriers was not insurance. The Court justified the ruling by stating that the fronting carriers were not bona fide insurance companies with issued insurance policies, and the captive insurance company’s reinsurance of those policies did not adequately distribute risk. Therefore, the manufacturing companies’ deductions related to the payment of purported insurance premiums was disallowed by the court. Additionally, the microcaptive insurance company was obligated to report the received payments as gross income.
Reichert, Tax Court denies microcaptive insurance arrangement, J. Accountancy (July 1, 2019)
