National Offices of Lance Wallach
No state has "approved" a life insurance policy just for captives. Subject to the tax restrictions, a captive can invest in pretty much any life insurance policy from any company, so long as there is enough cash value in the policy to meet the reserve requirements -- taking into account all the other assets of the captive. All states look for investments that have an easily verifiable value, such as stocks, mutual funds, or bonds, and that can be liquidated easily if needed.
If life insurance is going to be used with a captive, it should only be a relatively small percentage of the captive's assets and certainly no where near 100%. As the captive’s capital and surplus accounts grow, there may be some value, but certainly this should be done with caution.
Beware overpricing of services. In addition to the formation fee, management fee, and a percentage of the life insurance commissions, some promoters will also charge a percentage of deposits and a fee for using a shared risk pool. These fees are not commonly charged within the captive industry and may be considered excessive.
The life insurance community has a long and tortured history of seeking the Holy Grail of insurance schemes: the tax-deductible life insurance premium. Nearly every year around tax planning season, life insurance agents attempt to boost year-end sales by offering some kind of tax-deductible premium plan — the newest of which is the small business Captive Insurance Company (“CIC”) as an investor in life insurance. In this transaction, a small business deducts premium payments for business risks to an IRC § 831(b) CIC; the CIC is permitted to receive up to $1.2 million of premium income tax-free; and the CIC uses a substantial amount of the tax-free premium immediately to purchase life insurance on the small business owners who often also own the CIC. The Internal Revenue Service (“IRS”) already loses a substantial amount of otherwise collectible tax revenue due to the existing tax-breaks afforded life insurance policyholders, such as tax-free internal build-up inside life insurance policies and the receipt of policy proceeds tax-free at the death of the insured. Therefore, the IRS has historically staunchly defended the loss of additional life insurance-oriented tax revenue that may derive from tax-deductible life insurance premiums. In furtherance of this defense, the IRS has brought cases against individual taxpayers and promoters, designated certain abusive life insurance arrangements as listed transactions, and imposed accuracy-related taxpayer penalties.
Captive Insurance companies, are sometimes used to purchase life insurance outside the estate of the business owner with what amounts to pre-tax dollars.
This should not be the primary focus of the captive, but is something that can be done with a portion of the captive's accumulated assets. If the primary purpose of the captive is to buy life insurance, or act as the conduit for the pre-tax purchase for life insurance, or if life insurance becomes the significant asset of the captive, there is a risk that the arrangement will not be considered a bona fide captive arrangement but will instead be treated as a tax shelter.
A captive is an insurance company, and should be treated as such, not a vehicle for investing.
COMMERCIAL FLOORING REPORT
How much money have you lost in the market today? Is your insurance company still in business? Will it be in business tomorrow? Are you still working with your insurance agent financial planner, stock broker etc. who put you into this situation? Are you going to do anything about your situation? If you are like most people you will sell stuff and lose money, or do nothing while you lose more, your bank and insurance company goes out of business and your retirement plan savings disappears. It does not have to be this way. None of my clients have lost money. My retirement plans went up in value every month in 08. Why did you not have the same results.? Who do you listen to for advice? Your broker, insurance agent financial planner, or your friends? They have all lost money. Things are going to get worse. You can do something to get your money back, or like most people keep losing. Don't believe me put Lance Wallach into Google or any search engine to see what I do. Then compare it to whoever advises you. Who would you listen to now?
With the right expert you could: * Get back all the money you put into the plan in the first place * Reduce or eliminate the fines and penalties * Get into compliance so the IRS has no reason to attack you * Sue the agent, promoter, and/or insurance company that got you involved with the plan (some companies have initiatives in place to make a business owner whole)
The IRS is attacking captive insurance plans. The IRS fines Are Substantial And Once You Get Them They Cannot be Appealed
Our team consists of CPAs, attorneys, and former IRS agents with over 25 years of professional experience. Managing director Lance Wallach is the nation's leading expert on employee benefit plans, captive insurance problems, abusive tax shelters, reportable transactions, and IRS audit defense. He provides consulting services and serves as an expert witness. In his experience providing expert witness testimony, his side has never lost a case
Lance Wallach is a member of the AICPA faculty of teaching professionals and an AICPA course developer, is a frequent and popular speaker on retirement plans, financial and estate planning, reducing health insurance costs, and tax oriented strategies at accounting and financial planning conventions.
Evidence Review and Forensic Analysis
Research and analysis of tax and insurance laws
Complaint, Petition, and Response Preparation
Expert Witness Testimony
Expert Declarations and Affidavits
Exhibits for Settlement Conference, Mediation, and Trial
Active Litigation: Rebuttal Witness
Deposition, Arbitration and Trial Testimony
Plan reviews, evaluations and remediation
And more, as needed
2017 Copyright Lance Wallach. All rights reserved.