When the tail wags the dog

ON THE seminar circuit, captive insurance experts are usually quick to emphasise the non-tax reasons for forming a captive and downplay the tax reasons, as if taxation was merely a tangential complication of operating a captive. Meanwhile, in the boardrooms of captive owners, the tax aspects of having a captive are quite often one of the central points of analysis about whether to form a captive and how to evaluate a captive’s results of operations.

Why do the experts apparently strain to put distance between the topics of captive management and tax management? There are reasons for this; however, there may be sound reasons for expecting captive management and tax management to be two sides of the same coin. The following observations are offered to frame new questions to address at captive seminars and to stimulate discussion between the Internal Revenue Service (IRS) and captive advisers.