Nevada’s deputy insurance commissioner believes that if the Internal Revenue Service backtracks on proposed regulatory changes for 831(b) captives, around 50 of the 62 captives that were dissolved in the State last year will look to relaunch in the future.
Captive Intelligence reported in April 2023 that the IRS had put forward major changes to the way captives making the 831(b) are treated, including deeming some as “listed transactions” and labelling others as “transactions of interest”.
The proposed changes, which were the subject of a public hearing in August and divided opinion amongst some industry experts, have even prompted intervention from US Congress members in support of the 831(b) tax election for small captives.
Nevada licensed seven new captives in 2023, while 62 surrendered their licence, taking the total number of captives in the domicile to 100.
“With the assumption that it does not get adopted, they would certainly look into potentially re-forming their captives,” Nick Stosic, Nevada’s deputy insurance commissioner, told Captive Intelligence.
Stosic said the potential of being treated as a tax shelter led to these captives making the decision to close.
“It was something where even though it has not been adopted yet, they just wanted to get ahead of it,” he said. “I would say that we know 50 of those dissolutions were absolutely due to that.
“It was all reacting to the proposed 831(b) IRS rule, and they just felt more comfortable starting the year not having active captives. Unfortunately, we got hit with one shot with that.”
The State’s insurance commissioner Scott Kipper previously told Captive Intelligence Nevada was “awfully bullish” on the future of captives in the domicile.
Stosic said Nevada is expecting to launch a significant number of cells this year that will be focused on writing crop insurance.
“That’s something that we’re anticipating seeing more of this year,” he added.
He noted that sponsored captives have been the most active in terms of trying to form additional new cells in Nevada.
“We’re still continuing to see some of those sponsored captives come in with ideas for new cells,” he said.
“In terms of individual captives, I’d say we’re going to continue to try and be out there and promote Nevada, and we still think Nevada has got some incredibly positive assets that make it a great place to have a captive.”
Nevada’s legislature meets for 120 days every two years, and during this period captive regulatory changes will be proposed, with the next meeting starting February 2025.
“At this point we are starting to put together some potential topics to be in our bill for the next session, but we don’t have anything finalised,” Stosic said.
Kipper said they have already had good internal discussions about items that they may want the legislature to consider, “but I think it’s still early in the game”.