The Peck Group, LC
  • Comprehensive Tax Law Representation Since 1995

    We handle every aspect of tax law: preparing tax returns, representing clients during audits, resolving IRS and state tax controversies, and creating tax planning strategies for the future.

  • Problems With The IRS Or State Tax

    Our attorneys are committed to providing efficient and effective tax solutions for individuals and businesses in Georgia and nationwide.

  • Planning For The Future

    Our lawyers help individuals and businesses with all aspects of estate and tax planning. We help our clients use proactive strategies to minimize tax implications in the future

  • Changing The Balance Of Power

    Does it feel like the government has all the power? Taxpayers have rights, too. We use our knowledge of tax law to shift the balance of power and ensure that your rights are protected.

  • Tax Solutions … And Peace Of Mind

Beware micro-captive insurance company promoters

Many honest businesses take advantage of forming their own insurance companies. Called a "captive insurance company," this arrangement is legal. It helps companies obtain insurance for a unique type of business risk that makes standard insurance either unaffordable or hard to find.

Smaller businesses are also allowed the option to form their own insurance companies. The name "micro-captives" given to these insurance companies indicates the lesser size of their formation businesses.

Rules for a captive insurance company

A captive business-formed insurance company must follow the same government regulations as commercial insurers. To avoid IRS suspicion, the business should discontinue regular commercial insurance and move over to its own captive insurance company. The distinct advantage is that the business can set and pay lower rates than a commercial insurance company would charge them for the same coverage.

Tax benefits for a micro-captive insurance company

Promoters are professionals from a variety of financial jobs who approach a small business about opening their own micro-captive insurance company. Most promotors help small businesses set up law-abiding micro-captives for a legitimate business purpose. Micro-captives have attractive tax benefits under Section 831(b) of the tax code.

Unfortunately, some micro-captive promoters are not honest; their hidden (or sometimes open) agenda is to use the micro-captive only for the tax advantages available to a small company. Any small business approached by a dishonest promoter should run—not walk—away. Why? The U.S. government is aggressively pursuing these tax dodges and have listed dishonest micro-captive insurance company formations on the IRS "Dirty Dozen" scams operation list.

Spotting a fraudulent micro-captive promoter

What does a promoter gain from helping a small business set up a micro-captive? The promoter can take an initial organizing fee to set up the insurance company, but most promoters also manage and run the micro-captive insurance company. Any small business should thoroughly investigate the promoter; a dishonest person can use the company's trust to falsify business information and set up a fraudulent tax shelter for the business without the company's knowledge.

Any small business owner who suspects their micro-captive promoter has set up the new insurance company as an illegal vehicle for the sole purpose of raking in consulting and on-going management fees should watch for signs such as higher premiums, no actuarial examination, large capital withdrawals to cover risk and other suspicious behavior. The business owner should hire professional representation to internally investigate the promoter's activities to avoid suspicion of collusion should the IRS decide to target the micro-insurance company as a potential scam.

No Comments

Leave a comment
Comment Information
Email us for a Response

Talk to an Attorney

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.


Privacy Policy

The Peck Group, LC
5855 Sandy Springs Circle N.E., Suite 190
Atlanta, GA 30328

Phone: 770-884-6914
Fax: 770-933-2369
Atlanta Law Office Map

Payment Cards