London-based Verve Risk Services new ‘Micro-Captive Defender’ product will initially provide a $250,000 limit to 831(b) captives embroiled in legal disputes with the Internal Revenue Service (IRS) in the United States.
There’s been over 1,100 cases lodged in the US Tax Courts since 2014 for alleged unlawful 831(b) transactions, and 990 cases are still pending hearing.
Data seen by Captive Intelligence indicates that of the approximately 80 micro captive cases concluded in the U.S. Tax Courts since 2014, no deficiencies were found in 25 of those.
In April 2023, the IRS “obsoleted” its notorious Notice 2016-66 and issued new proposed regulations that identify certain micro captive transactions – those making the 831(b) tax election – as “listed transactions” and other micro captive transactions as “transactions of interest”.
“In terms of the product itself, it offers a $250,000 ‘sleep at night’ limit,” Scott Simmons, Verve Risk director, co-founder and lead underwriter for the programme, told Captive Intelligence.
“The intent behind this product is that it can only be activated in response to a specific IRS investigation under the 831(b)-tax code and offers the client coverage against legal fees in addition to fines and penalties,” he added.
Earlier this month, the IRS announced plans to release the text of the 2024-2025 priority guidance, which includes plans to finalise its micro captive regulations.
Simmons said that depending on the product’s future success, there may come a time when the firm considers offering larger limits.
“However, we believe that starting with a smaller limit is the best approach from both an internal risk management perspective and to gauge market interest,” he said.
Simmons said that a targeted approach is key to the potential success of the product.
“If we were to blanketly distribute it across the U.S., there would likely be a high level of interest, but we might not attract the kind of captive expertise that we seek for the product,” he said. “There’s a risk that this product could be misrepresented.”
Simmons said the strength of the product lies in collaborating with captive managers, who understand their clients on a day-to-day basis and are in the best position to identify the appropriate audience.
“it’s important to emphasise that the intent of this product is to provide an option for those utilising the 831(b) structure correctly appropriately, rather than for those who may be looking to exploit it,” he said.
Simmons said it is not the intent to sell either the company’s Micro-Captive Defender or Captive D&O products to a captive manager who only manages two to three captives, “although we are open to discussing”.
“While I’m not questioning their legitimacy, I believe we have a better chance of achieving our goals by partnering with more established and specialist entities, such as the SRA 831(b) Admin or larger captive management firms” he said.
