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Captive Insurance Companies: Dead or Alive?  

Author:  Michael F. Lynch.; Nicholas C. Lynch.; David B. Casten.

Source: Volume 33, Number 02, Winter 2016 , pp.7-18(12)

Journal of Taxation of Investments

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For many years, large corporations have been forming captive insurance companies offshore to obtain insurance coverage that was either unavailable or too costly under a commercial policy. Without a captive, these companies would either have to forgo necessary coverage or become self-insured. Today, several states have made it easier and less costly to form and operate a captive. This has made it possible for smaller companies to enter the captive arena. A small captive offers estate planning and wealth accumulation opportunities for the owners of these small companies. The IRS has been challenging these small captives as abusive tax shelters formed to avoid paying taxes. However, if properly formed and operated, a small captive can withstand IRS scrutiny and provide substantial tax benefits to such companies and their owners.

Keywords: captive insurance, estate planning, reinsurance, asset protection, risk shifting and distribution, “economic family” doctrine, “small” captive election

Affiliations:  1: Bryant University; 2: California State University, Chico; 3: Bryant University.

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