22
May
2009

Phillip England and Randall Beckie discuss and attempt to dispel the confusion surrounding the tax treatment of cell captives that has been created in the wake of Revenue Ruling 2008-08

Captive Review

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PUBLISHED ON: May 22, 2009

 IN REVENUE Ruling 2008-8, the IRS validated a method of analysing the nature of a purported insurance arrangement involving a cell of a segregated cell company (SCC). The IRS’ method is essentially to allow that the cell may be viewed as a separate insurance company for tax purposes if transactions with the cell give rise to risk shifting and risk distribution in keeping with definitional criteria per Revenue Rulings 2002-89, 2002-90 and 2005-40.

The IRS’ method is the same approach that was available to taxpayers based on tax principles that have existed since long before the issuance of Revenue Ruling 2008-8. Indeed, some taxpayers independently had already come to the conclusion that a cell company was allowed to file a separate US insurance company tax return.