Extra care must be exercised when forming and licensing an insurance company outside the US if US taxation, including qualifying for the IRC 831(b) small insurance company election, is an important project planning component. For such 831(b) qualifying projects, making the IRC 953(d) election which allows offshore insurance companies to be taxed as US taxpayers, is a required early project stage step. Filing a protective notice with the IRC under the CFC (Controlled Foreign Corporation) provisions is also sometimes advised by some tax lawyers.
In March 2014 the IRS issued guidance and clarification on its policies and procedures regarding IRC 953(d) elections. It has been reported this is putting offshore 953(d) 831(b) captives on notice that if they were not properly formed and managed, including being part of a defective 3rd party risk pooling arrangement, significant fines, penalties and adverse tax consequences could result. Click here to view this 2014 IRS memo on topic.
