CAPTIVE INSURANCE BUSINESS DEDUCTIONS: THE EVOLUTION FROM THE PARENT-SUBSIDIARY CAPTIVE STRUCTURE TO THE BROTHER-SISTER CAPTIVE STRUCTURE 1.
INTRODUCTION ............................................................................... 280
II.
THE POTENTIAL TAX BENEFITS OF CAPTIVE INSURANCE TRAN SA CTION S ..............................................................................
HI.
INSURANCE DEFINED: THE RISK SHIFTING AND RISK DISTRIBUTION STANDARD ............................................................. 287 THE PARENT-SUBSIDIARY CAPTIVE STRUCTURE: INSURANCE PREMIUMS NOT DEDUCTIBLE UNLESS THE CAPTIVE DOES BUSINESS OUTSIDE THE CORPORATE GROUP ................................ 288
IV.
281 from A. The Tax Benefit to the Captive: PotentialExclusion 282 Gross Income ...................................... B. The Tax Benefit to the Insured. DeductibleBusiness 282 Exp ense ................................................. 283 ...... Premiums C. DistinguishingSelf-Insurancefrom Insurance
A. The Separate CorporateEntities Doctrine............................. B. Revenue Ruling 77-316: The "One Economic Family" Doctrine .................................................................................. 1. Situation 1: TransactionsExclusively Between the Parentand the Captive...................................................... 2. Situation 2: The Captive Reinsures the Risk of the P arent................................................................................ 3. Situation 3: The Captive Transfers the Risk Outside the CorporateGroup............................................................... C. Revenue Ruling 78-338: Spreading Out Ownership of the C aptive .................................................................................... V.
289 289 290 29 1 295 298
THE BROTHER-SISTER CAPTIVE STRUCTURE: THE MOVE TOWARDS ALLOWING DEDUCTIBLE INSURANCE PREMIUMS ........ 298
Sibling Corporations:The Balance Sheet Testfor Deductible InsurancePremiums ............................................. B. UnrelatedRisks: Enough UnrelatedEntities Will Achieve Risk Shifting and Risk Distribution......................................... C. The HarperGroup Factors: The Captive Must Be Legitimately Organized........................................................... D, The Safe-HarborRulings ........................................................
A.
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