Captive insurance companies are also called microcaptive or minicaptive. These microcaptives are built to make sure that the companies insured under it are protected. In some cases, the business owner is the same with both companies. Creating their own insurance company assures that they can manage the budget well and guarantee that the profits earned from the insurance are still with the same corporation.
To construct an authorized microcaptive, the Section 831b under the Internal Revenue Code of the US Tax Code must be studied, obeyed and respected. There are some disadvantages and threats that can possibly happen due to failure in following the Section 831b. The Internal Revenue Service or IRS may chance upon misuse and exploitation of the business owner to its captive insurance company. To protect and handle these problems, an 831b attorney must be hired to present the claims of legality and lawfulness of a microcaptive.
Hiring tax lawyers may take some research and examination. Business owners are looking for individuals who have good records and reviews from previous clients. Here are some of the tasks and responsibilities of a tax lawyer:
1. Confidentiality
One of the obligations of a tax lawyer is to keep all transactions and conversations discrete. Business owners trust them thus, bank records and accounts are divulged with appropriate professionals. The goal of the attorney is to use the data given to analyze the case and look into the specifics of all transactions with the microcaptive. Certain logs and ledgers must be obtained and reviewed to find out the business affairs done. Finding the actuality with the case filed by the IRS may take some time and effort.
2. Communication
A competent attorney must collect information not just through written content but also through the links and people associated with the case. Commonly, lawyers do interviews by questioning these individuals to clarify some claims and issues. Writing or typing it down is important for future use as evidence. Through the communication done, the lawyer may further elucidate on the matter and eventually see loopholes if there are any.
3. Defending Clients
The final work of a tax lawyer is to defend the business owner in front of the authorities with the IRS present. Since they are the best persons knowledgeable about the tax code, they can represent and defend the client’s company and claims. Evidence, documents and witnesses are prepared to smoothly and successfully go through the process. If there is a need for an accountant, they may also arrange for one to come into the hearing.
To avoid these difficulties in a microcaptive, an owner and its employees must be fully equipped and well-informed of the US Tax Code. Same as any other company, there are advantages and risks that a captive insurance company may encounter dealing with Section 831b of the Internal Revenue Code. While threats may include complications found by the IRS, there are also benefits for the company.
Since both companies are owned by only one individual, there is offset or balance in each other’s payments. Thus, it is tax neutral and will not affect the tax rate of each company’s goods and services. Today, companies are looking into captive insurance for their use. They should keep in mind that while it is profitable, it is also perilous and requires extensive preparation and familiarity.
