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Abstract: 

Producer-owned reinsurance companies (PORCs) are typically offshore entities that reinsure risks of customers of a related service provider, lender, or retainer. Many such entities have taken the position that they are entitled to the tax benefits available to small insurance companies. Notice 2002-70,1 based on information that these arrangements were being used to shift income to avoid income tax, included PORC arrangements as listed transactions. Now, in Notice 2004-65,2 the IRS has determined to remove transactions the same as, or substantially similar to, those identified by Notice 2002-70, from the list of abusive tax shelters and transactions.3 Nevertheless, the Service indicates that it will continue to scrutinize such transactions where income is shifted “to related companies purported to be insurance companies that are subject to little or no U.S. federal income tax.” In Notice 2004-67,4 the IRS has seen fit to update the list of transactions determined to be “listed transactions” under Reg. 1.6011-4(b)(2), 301.6111-2(b)(2), and 301.6112-1(b)(2).

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