Ryan Work Vice President, Government Relations Self-Insurance Institute of America (SIIA) 2019 DCIA Spring Forum Ca Capti tives es: : Policy cy & Regulatory En Environment
Lessons of the B-26
100 New Members • 64 Democrats • 36 Republicans • 40 New Female Members • Congressional Cliques • Tri-Caucus Sway 116 th Congress: At a Glance
21 Democratic Candidates Primary Traffic 2020 Election Partisan Gridlock Voter Enthusiasm/ Partisanship Increase
Policy Issues: • ACA/ Health Cost • Immigration/ Dreamers Co Congr gres essional • Infrastructure Ag Agenda: a: • Tax Wh What to o Expect in Ex Focus Areas: • Executive Branch Investigations (House) 2019 2019 • Federal Court Appointees (Senate) • 2021 Redistricting (Party)
Cu Curr rrent Ca Captive Is Issues ues 2018 Tax Reform Guidelines • Rates & Timing • Corporate • Offshore Taxes (CFC-NCFC) Tax Court Cases • Avrahami/ Reserve/ Syzygy PATH Act/ Notice 2016-66 State Activities
SI SIIA Ca Captive A Act ctivities Legislative/ Regulatory Advocacy • PATH Act Clarifications • Notice 2016-66 • Tax IRS/ Treasury Meetings • Education • Scope Narrowing • Benchmarks Educate & Meet with Policymakers • General Captive Education • Congressional & Industry Support
SIIA Ca SI Captive Manager Co Code o of Co Conduct Principles: Integrity, conflict of interest, confidentiality, • advertising and practice management. Goals: Anticipating industry challenges • Easily understandable for clients, policymakers • and regulators; Professional differentiator for SIIA members • and managers; and • Needed level of uniform professionalism to the industry. Feedback/ Actions: • TN Now Requiring Sign-Off from Captive Managers Code Task Force •
Ne New F Face ces: I : IRS/ T S/ Treasury Acting IRS Comm. David Kautter • Back as Asst. Treasury Sec. (OTP) New at Treasury Insurance Section Angela Wallit • New IRS Chief Counsel • Michael Desmond New IRS Comm. Charles Rettig • Chaired IRS Advisory Council • Active in ABA Tax Section • Tax Fraud Attorney
IR IRS LB&I: &I: Cap aptiv tive e Cam ampaig paign Goal: Ensure “that US multinational companies are paying their captive service providers no more than arm’s length prices”. • “Excessive pricing…inappropriately shift taxable income to foreign entities and erode US tax base.” • OECD rules for arm’s length pricing for transactions between controlled entities. • Foreign captive subsidiary transactions providing services exclusively for the parent or multinational group. • Arm’s length price is determined “by taking into consideration data available on companies performing functions, employing assets, and assuming risks that are comparable to those of the captive subsidiary”. • Campaign identified through LB&I data analysis and IRS employees.
IR IRS View w of ERCs Dirty Dozen Tax Court Focus • Curb abusive arrangements through • Organized/ Operated as Insurance audits, investigations, and litigation. Company • “…devoted substantial resources with more than 500 docketed cases in Tax Court.” • Capitalization • “…promoters, accountants or wealth planners persuade owners of closely-held • Valid & Binding Policies entities to participate in schemes that lack many of the attributes of insurance.” • Reference to Court Cases • Reasonable Premiums/ Arms Length • Notice 2016-66 Reporting Requirements Transactions & Information Collections • Tied in with Trusts & Conservation • Actual & Paid Claims Easements What was not included: • No mention of PATH Act • “Captives may…advance inter- generational wealth transfer objectives and avoid estate and gift taxes. “
PATH Act Clarifications: 2018 Omnibus 1) Clarify look-through for reinsurance or fronting arrangements 2) Clarify specified assets ( under Test 2 ) to mean aggregate amount of related assets owned by spouse/ relation. • Two-year grace period when acquiring ownership through inheritance or death. 3) Spousal Clarification JCT leaves up to Treasury Department guidance related to ownership, premiums, gross revenue, and factors taken into account under applicable State law for assessing risk.
No Notice e 2016-66: 66: Tr Transactions of Interest • Nov. 2016: IRS issued Notice 2016-66 designating most 831(b) captives as “Transactions of Interest” • Notice triggers disclosure requirements for both participants and material advisors • Filing Requirements: • 831(b) Captive owner has at least 20% of the captive AND: • The captives’ losses and loss expenses are less than 70% of premiums earned less policyholder dividends, or • Captive has made loans benefiting affiliates.
IRS Notice: Industry Impact Total 831(b) captives in survey 2,397 Total number of Forms 8886 and 8918 15,021 Total cost of compliance $22,186,800 Average cost per captive to file all Forms 8886 and $9,257 8918 Total hours of compliance 121,755 Average hours per captive for compliance 50.97 Ø Annual cost to prepare Form 1120PC federal tax return: $1,000 to $4,000/ yr. Ø Average cost to complete Notice reporting (per captive): $9,257. Ø Form 8886 IRS estimate:10.16 hrs. recordkeeping/6.25 hrs. preparation. Ø Form 8918 estimate: 9.79 hours for completion.
Wha What’s s Next? • IRS reviewing filings: • Abusive vs non-abusive structures. • What will IRS Determine? • Deleted from TOI category • Designated as Listed Transactions • IRS Exams: Blanket Audits • Global Settlement • Need for scope narrowing 15
Domiciles vs. Non-Domiciles St State I Issues: : NR NRRA & Self & Self- Captive Insurers Clarification Act Pr Procurement Clarifies captives are excluded from Mi Microsoft osoft ‘nonadmitted insurers’ for purposes of Dodd-Frank. Johnson Joh son & Johnson Joh son Means captive would be taxed and regulated by the state of domicile, not necessarily where the business’s corporate headquarters is located.
Ø Create education and stabilizing proactive position for captive industry Ø Partner with Treasury on narrowing focus to appropriately review captive structures Ø Engage captive owners as storytellers Ø Create Congressional Champions Ø Active Industry Participation SI SIIA A Advoc ocacy cy Strategy St
Ta Takeaways/ Questions Ø Educate Policymakers/ Regulators Ø IRS Has Critical Eye on Captives Ø Need Technical Guidance & Focus Ø Congress Has Created Path Forward Ryan Work Self-Insurance Institute of America rwork@siia.org WWW.SIIA.ORG
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