NEWSLETTER
Issue 1-04                                                                                                           May 4, 2004

 

New Law Changes The Way "Small" Insurance Companies Are Taxed!!

The Pension Funding Equity Act of 2004 (Public Law 108-218),
[ http://www.intercontinentalcaptive.com/PensionFundingEquityActof2004.pdf], which was signed into law on April 10, 2004, includes provisions that will change the manner in which "small" property and casualty insurance companies are taxed. "Small" property and casualty insurance companies are those that take advantage of Sections 501(c)(15) or 831(b) of the Internal Revenue Code.

Tax Exempt Companies
Under the prior tax law, a property and casualty insurance company was exempt from federal income tax if the greater of net or direct written premiums was $350,000 or less. The new law amends Section 501(c)(15) to indicate that a stock property casualty insurance company is tax-exempt if its gross receipts for the tax year do not exceed $600,000, and the investment income is less than premiums received for the tax year.

Sec. 831(b) Companies
Under prior law, small property and casualty companies could elect to be taxed on investment income if gross premiums received were between $350,000 and $1,200,000. Changes to the law make this tax treatment available to companies that have less than $350,000 during a tax year.

What does this mean?

• Some companies may inadvertently fall under the 501(c)(15) status.
• Section 501(c)(15) companies which exceed the investment income limits will be fully taxed on premium and investment income unless they take steps to mitigate their tax liabilities.
• Very few, if any of our clients will be negatively affected, and some may even be able to reduce taxes under the new law.
• The new law should be a boon to formation of new captives, especially new tax exempt family owned captives.

If you would like more information on these changes to the tax code please contact Tom Roberts at 800-214-0214 or John Patton at 866-944-7700.

Intercontinental Captive Management Company, Ltd. (ICMC) is an independent consulting company headquartered in St. Thomas, U.S. Virgin Islands. We operate as the U.S. manager for both U.S. and non-U.S. based captives.

We do not replace the local manager required by a captive's domicile. Our legal, accounting, financial and insurance professionals are experts and specialists in insurance company matters in the United States.

For More Information about ICMC
Please Visit our Website at: 
www.IntercontinentalCaptive.com

NOTE: This Newsletter and the subject matter discussed therein is intended only as a general review and does not constitute an opinion or legal advice