Now that tax season is over, hand-wringing season has begun as many business owners wait and worry about whether an audit may be in their future.
For businesses that have utilized a form of self-insurance known as captive insurance, there might be added nerves, especially with some commentators making misleading, blanket statements that captives are essentially nothing more than abusive tax shelters perpetrated only by bad actors.
The truth is captive insurance has been a tried, true and perfectly legal form of self-insurance for over three decades, created by Congress in the 1980s, and expanded and encouraged by Congress as recently as the Obama administration.
Section 831(b) allows businesses to create their own insurance entities, known as captives, to help them mitigate risks not typically covered by commercial insurance. Businesses can also receive a tax benefit for the premiums they pay to captives.