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Indications are that it was so effective, and the arguments presented so compelling, that the IRS announced on Feb. 20 that it was withdrawing the proposed regulations before even having a hearing on the matter, which had been scheduled for Feb. 29.

Dennis Harwick, president of the Minneapolis-based Captive Insurance Companies Association, said he asked people familiar with how the IRS operates about the quick reversal, and in his words, "Frankly, none of them could remember that ever happening."

So was it the hundreds of thousands of dollars spent on technical research by CICA and its partner in the Coalition for Fairness to Captive Insurers, the Vermont Captive Insurance Association, that punked out the IRS?

Or was it a parallel lobbying effort by the Self Insurance Institute of America Inc. and its alliance with captive insurance organizations in South Carolina, Montana and Washington, D.C., that did the trick?

Guess what? Who cares?

The point is that the industry was able to get the job done and perhaps will be able to use the cooperative energy assembled in the firefight over the IRS' proposed tax-deduction regulations to be an even more effective force collectively in the future.

"I think this is a tremendous example of the industry finally coming together in a close fashion to combat head-on a bureaucratic agency's posturing, if you will," said Dick Goff, a managing member of the Towson, Md.-based Taft Cos. LLC and president of the Simpsonville, S.C.-based Self-insurance Institute of America Inc.

The impact of the decision by the IRS to drop a proposal that would have deferred a tax deduction on domestic captive loss reserves for those captives that are included on their parent company's balance sheets should be fairly immediate, according to one Vermont captive management executive.

"We had at least one very serious prospect who wasn't going to move forward until they saw some resolution on this issue," said John Borch, the president of Champlain Captive Management Inc., based in South Burlington, Vt.

And, Borch said, if his smaller company was seeing that behavior from one of its clients, you should be able to take out your calculator and multiply the effect.

"I'm sure the larger players had several themselves. I think there was some pent-up demand from some companies waiting to see what happened before they moved forward," he said.

DAN REYNOLDS is senior editor of Risk & Insurance®.

February 21, 2008

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