The US Tax Court has held in a case involving a ‘microcaptive’ insurance company that the arrangement between the captive insurer and its policyholders did not qualify as insurance for tax purposes (Syzygy Insurance Co., Inc. v. Commissioner, T.C. Memo 2019-34). As a result, the insurer’s Section 831(b) election was invalid and amounts received by the taxpayer as premiums were recognized as income. Further, premium payments and any fees paid under the arrangement were not deductible by the insureds as either payments for insurance or as payments for other ordinary and necessary expenses.
The US Tax Court has held in a case involving a ‘microcaptive’ insurance company that the arrangement between the captive insurer and its policyholders did not qualify as insurance for tax purposes (Syzygy Insurance Co., Inc. v. Commissioner, T.C. Memo 2019-34). As a result, the insurer’s Section 831(b) election was invalid and amounts received by the taxpayer as premiums were recognized as income. Further, premium payments and any fees paid under the arrangement were not deductible by the insureds as either payments for insurance or as payments for other ordinary and necessary expenses.
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