Is it time your captive had a checkup?

There has been some press lately about the IRS auditing enterprise risk captives. The IRS has definitely increased its scrutiny of captives over the last few months, and more than a few captives are currently experiencing audits.

For most enterprise risk captives, this shouldn’t be a problem. Certainly, it’s always stressful to have the auditors looking over your shoulder, but when they’re set up properly, enterprise risk captives operate like any other insurance business, under a series of well-defined laws and regulations that dictate exactly how they should operate. Uphold and maintain the spirit of captive, follow the letter of the laws, and you should pass an audit without any difficulty.

What happens in an audit?

One of the most critical aspects of the enterprise risk captive that the IRS is looking at involves the nature of the captive – is it a legitimate risk tool built for the purpose of insurance, or is it something else?

The IRS will also look at the kind of insurance coverage the captive provides to make sure the insurance is necessary to the business, and they’ll want to know about the integrity of the risk distribution that supports the captive. In short, they want to see a duck that looks like a duck, walks like a duck, and quacks like a duck. They’ll ask for all the paperwork, accounting support, and legal documents you’ve got, and they’ll probably give your accountants and lawyers a run for their money and yours for a few months.

Should you be worried?

At Intuitive, we spend a lot of time and energy in the discovery phase making sure that a business is right for a captive and that the captive is right for the business. Before we ever begin underwriting, we know that a captive is a good and viable option for the company we’re working with. We spend an equal amount of time and energy getting all of your ducks in a row when we’re setting up the captive. We’ll pull all the paperwork together, all the legal documents, and every bit of information a company might need if they were ever to be audited, and provide the company’s officers with all of this documentation (we keep a copy, too) and then we set about the task of keeping the documentation current quarter-over-quarter, year-over-year.

We also maintain a risk pool that is the best in its class. To get more information about it you can either give one of our partners a call, or read what they have to say about our management philosophy and our risk pool.

If you’re at all concerned about the status of your enterprise risk captives, please call us. We have professionals on staff who can evaluate your captive and provide you with feedback on how it’s been set up and maintained. We’ll do this free of charge and with no obligation. We want to help you avoid problems down the road, and start a conversation about best practices in the industry. A rising tide lifts all boats, we’re here if you need safe harbor.