Captive Insurance Program
In 2017 the $1.2 million premium limit will increase to $2.2 million and will be indexed to the Consumer Price Index. To make an 831(b) election, an insurance company must meet one of two substitute tests for each year in which it’s taxed under Section 831(b).
To meet the first test, a diversification test, no more than 20% of the insurance company’s premiums can come from any one policyholder. The broad classification of ‘policyholder’ relates the attribution rules of Sections 267(b) and 707(b) and a modified type of the controlled group rules of Section 1563(a).
If one policyholder is associated to another, those policyholders will be treated as one policyholder for this diversification test. The second test, a substitute to the first, principally necessitates that ownership of insured businesses and assets emulate (within a 2% de minimis margin) ownership of the insurance company.