San Juan, Puerto Rico – (March 5, 2025) The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have finalized Micro-Captive Regulations, issued on January 14, 2025, providing long-awaited clarity on the scope of transactions subject to enhanced scrutiny. The final rules confirm that only insurers that elect to be taxed under Internal Revenue Code Section 831(b) and meet specific ownership criteria fall within the regulation’s scope.

The updated guidance helps businesses and insurers distinguish which risk management structures the IRS considers abusive. For organizations that do not elect 831(b) tax treatment or do not meet the IRS’s 20% ownership test, these regulations do not apply.

Madison Insurance Group is not a captive insurer and is not subject to these regulations. Unlike micro-captives, Madison does not make a Section 831(b) election and no insured owns 20% of Madison—two fundamental criteria in the final IRS rules. Under the final regulations, only insurers that issue insurance or reinsurance contracts, elect 831(b) tax treatment, and are at least 20% owned by insured parties fall within the scope of these rules. Madison Insurance Group does not meet these requirements.

“This final rule is a significant step in bringing certainty to businesses evaluating their risk management strategies,” said Aran Quinn, a certified public accountant and tax attorney specializing in transactional tax planning. “Treasury and the IRS have now made it clear that unless an insurance company elects 831(b) tax treatment and meets specific ownership thresholds, the insurance transaction  is not the type that the government seeks to challenge by requiring disclosure. This clarification allows businesses to make more informed compliance decisions.”

The IRS’s primary focus remains on captive insurance structures lacking economic substance with tax-driven premium structures. The final regulations reinforce that compliance hinges on the 831(b) election and the 20% ownership threshold—without both, an insurance transaction does not meet the criteria for disclosure.

“For years, businesses operating legitimate insurance programs faced uncertainty due to the IRS’s broad approach,” said Garrett Gregory, former IRS Senior Tax Attorney and co-founder of Gregory Law Group, PLLC. “With these final regulations, the IRS has now set clear parameters: no 831(b) election, no captive classification. This provides a crucial distinction for businesses navigating risk management and tax compliance.”

The clarity provided by the new rules also strengthens differentiation within the insurance sector, allowing businesses to demonstrate compliance with regulatory requirements.

“At Madison Insurance Group, ensuring compliance has always been a top priority,” said Mark Sims, President of Madison Insurance Group. “This regulatory update reinforces the importance of adhering to well-established risk management principles and provides an opportunity to further distinguish legitimate insurance solutions from those that fall under heightened scrutiny.”

With these final regulations in place, businesses now have a clear framework for assessing their insurance arrangements. While the IRS remains focused on identifying and addressing abusive tax-driven transactions, the narrowed scope of these rules offers greater certainty to organizations that operate within compliance.

For more information, visit www.madisoninsurancegroup.org.

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