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Recent Developments and Technical References
 
Captive Structure
IRS Revenue Ruling 2001-31
In this ruling, the IRS abandoned the "economic family" doctrine which the Service used to attack captive planning.
UPS v. Commissioner, 254 F.3d 1014 (11 Cir. 2001)
In this significant case, the taxpayer's tax motivation for forming a captive was upheld in a $2 billion victory for the tax payer.
Humana, Inc. v. Commissioner, 881 F.2d 247 (6th Cir. 1989)
In this landmark case, the Service lost its "economic family" argument.
Kidde Industries v. U.S., 40 Fed. Cl. 42 (1997)
Holds that Humana case applies to brother-sister subsidiaries and not divisions.
IRS Revenue Ruling 2002-89.
In this ruling, the IRS determined that where a captive derives 50% of its premiums from underwriting its parent's risks (with the other 50% of premium revenue from unrelated parties), there was sufficient risk distribution to constitute "insurance".
IRS Revenue Ruling 2002-90.
In this pronouncement, the IRS ruled that a captive which insured 12 subsidiaries of a common parent, with no unrelated insurance underwriting, had sufficient risk distribution to constitute "insurance".
IRS Revenue Ruling 2002-91.
In this ruling, the IRS determined that if within a group captive no one member's covered risks exceeded 15% of the group's total risks, then that captive possessed sufficient risk distribution to constitute "insurance".
IRS Revenue Procedure 2002-75.
In this publication, the IRS announced that it will now consider ruling requests on the tax treatment of captives.
IRS Notice 2002-70.
In this November 2002 pronouncement, the IRS announced that captive transactions utilizing certain reinsurance arrangements (so-called "PORCs") resulting in shifting of income will be "listed transactions" for purposes of Reg. Sec. 1.6011-4.
Tax Shelter Disclosure Regulations.
These regulations were first published 3/2/00 as temporary regulations requiring corporate taxpayers to make appropriate disclosure if it engages in either: (i) a "listed transaction" as defined; or (ii) a transaction that reduces taxes by $10 million and that meets 2 of 6 other criteria -- unless that transaction is in ordinary course of business. These regulations were modified on 8/16/00, on 8/7/01, and on 6/18/02 to include non-corporate taxpayers. Revised temporary regulations were published on 10/22/02, effective 1/1/03, and expanded to require disclosure if a transaction meets any one of six criteria. Final regulations, published and effective 2/28/03, basically follow the revised temporary regulations published on 10/22/02.
State Independently Procured Premium Taxes
Dow Chemical Company v. Carole Keeton Rylander, Comptroller of State of Texas, 38 S.W.3d 741 (Tex. App.-Austin[3rd Dist.] 2001, cert denied)

This case again declared Texas' independently procured premium tax unconstitutional.

State Board of Insurance v. Todd Shipyards Corp., 370 U.S. 451 (1962)
Landmark U.S. Supreme Court case limiting a state's ability to tax a foreign domiciled insurer.
Additional Background on Captive Planning (to come)
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