Category: Business Insurance

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Business Insurance Captive Insurance

Why Make a 953(d) Election?

953d election
953d election

There are a number of reasons why a foreign insurance company would make a so-called 953(d) election.  This article will discuss two of those reasons.

What is a 953(d) Election?

The term “953(d) election” refers to a decision made by a foreign insurance company to be taxed as a United States taxpayer.  For purposes of this discussion, a foreign insurance company is an insurance company incorporated in an off-shore jurisdiction, which is neither licensed, nor engaged in business, in the United States, and can include a captive insurance company.  Typically, a foreign insurance company would not be taxed as a United States taxpayer and would not be required to file a Form 1120-PC with the Internal Revenue Service (IRS).

For the reasons discussed below, a foreign insurance company might prefer to be taxed as a United States taxpayer.  As a result, section 953(d) of the Internal Revenue Code (Code) permits a foreign insurance company to elect to be taxed as a United States taxpayer if certain conditions are met.  Those conditions include the following:

1. The foreign corporation must be a “controlled foreign corporation” (CFC).

2. The foreign corporation would qualify under part I or part II of subchapter L of the Code, if it were a domestic corporation. This simply means that the corporation is an insurance company.

3. The foreign corporation meets the requirements set out by the IRS. The IRS has set out those requirements in Rev. Proc. 2003-47.

4. The foreign corporation makes an election to have section 953(d) apply.

What is a Controlled Foreign Corporation?

As stated above, one of the requirements for making a 953(d) election is that the foreign insurance company is a controlled foreign corporation.  The definition of a CFC is provided in section 957(a) of the Code, as modified by section (b) for insurance companies.  A CFC is any foreign insurance company if more than (i) 25% of the total combined voting power of all classes of stock entitled to vote, or (ii) 25% of the total value of the stock of such corporation, is owned by a United States person on any day during the taxable year of the corporation.

The term “person” includes a United States citizen, a domestic partnership, a domestic corporation, an estate and a trust.  Ownership refers not just to direct ownership, but also includes ownership determined by applying rules of attribution.

How Does a Foreign Insurance Company Make a 953(d) Election?

The requirements for making a 953(d) election are set forth in Rev. Proc. 2003-47, which provides that a foreign insurance company must submit a statement to the IRS of its intention to be taxed as United States taxpayer.  The statement must include a list of all United States shareholders, including the name, address, tax identification number and ownership interest of each shareholder.  The foreign insurance company must agree to update the list on an annual basis.  In addition, the foreign insurance company must agree to pay all taxes as they become due.  An acceptable form of the statement is attached to Rev. Proc. 2003-47 as Appendix A.

In addition, the foreign corporation must meet one of two additional requirements.  The first is called the asset test.  To satisfy the asset test, the foreign insurance company must have (i) a place of business within the United States and (ii) assets equal to 10% of its adjusted gross income for the base year, which are physically located in the United States.  The base year is the taxable year immediately preceding the year in which the election is filed or the year of filing for a new entity.  A foreign insurance company that does not meet the asset test will instead be required to enter into a closing agreement with the IRS and post a letter of credit in an amount equal to 10% its adjusted gross income for the base year, but not less than $75,000 or greater than $10,000,000.

The election is not effective until it has been accepted by the IRS.  However, it will be effective as of the first day of the tax year in which the election was filed.  The election remains in effect until it has been revoked.

The Shareholder of a CFC is Taxed on Subpart F Income

The first reason for a foreign insurance company to make a 953(d) election is that, without the election, certain shareholders of the foreign insurance company will be taxed on the insurance income of the corporation.  So, while a foreign insurance company, which is a CFC, may not be subject to United States income tax, its shareholders are.

Section 951(a)(1) of the Code provides that:

If a foreign corporation is a controlled foreign corporation at any time during any taxable year, every person who is a United States shareholder . . . of such corporation and who owns . . . stock in such corporation on the last day, in such year, on whichcsuch corporation is a controlled foreign corporation shall include in his gross income . . .

(A) his pro rata share . . . of the corporation’s subpart F income for such year . . .

The term “United States shareholder” is defined in section 951(b) as any person who owns 10% or more of the voting power of all classes of stock of the foreign corporation entitled to vote or 10% or more of the total value of shares of all classes of the foreign corporation.  The term “subpart F income” is defined in section 952(a)(1) as “insurance income” (as defined under section 953), and section 953(a)(1)(A) defines “insurance income” as any income in connection with the issuance of an insurance or annuity contract.  In addition, the tax is owed on subpart F income whether it is actually paid to the shareholder or not.

The shareholders of a foreign insurance company will be taxed on the gross premiums paid to the foreign insurance company, if the foreign insurance company is a controlled foreign corporation, as most captives are.  This tax is not only paid on money actually paid to the shareholders, but also on phantom income – i.e. income that is not distributed to the shareholders.  However, shareholders of a foreign insurance company, which is a CFC, will not be subject to this tax if the foreign insurance company makes a 953(d) election.  In that case, the foreign insurance company will be taxed as a United States taxpayer and not as a CFC.

A Foreign Insurance Company is Subject to the Federal Excise Tax

The second reason for a foreign insurance company to make a 953(d) election is section 4371 of the Code, which imposes an excise tax on foreign insurance companies that issue policies covering United States risks.  The tax is very straightforward.  It is a certain percentage of premiums without deductions or set offs.

For property and casualty insurance, the tax is 4 cents on each dollar, or fraction thereof, of premium paid on the policy.  For life insurance, the tax is 1 cent on each dollar, or fraction thereof, of premium paid on the policy.  The tax is also 1 cent on each dollar, or fraction thereof, of the premium paid on a policy of reinsurance.

A foreign insurance company that makes a 953(d) election is treated as a domestic corporation.  It is not taxed as a foreign corporation.  Therefore, premiums paid by a United States person to a foreign insurance company, which has made a 953(d) election, are not subject to the Federal Excise Tax.  This is a great reason for making a 953(d) election.  It means that 100% of the premiums received by the foreign insurance company, including a captive insurance company, will be available to pay claims asserted against the insurance company.  This will provide policyholders with peace of mind that the foreign insurance company will have the ability to pay claims as they become due.

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Business Insurance Press Release

Joy Savasta-Lagan Joins RMC As Commercial Lines Account Executive

New Hire - Welcome Aboard
New Hire - Welcome Aboard

RMC Group is pleased to announce that Joy Savasta-Lagan has joined the company as a Commercial Lines Account Executive. Joy is responsible for maintaining relationships with our business clients and soliciting new business for the Property and Casualty division of RMC Group.

Joy Savasta-Lagan
Joy Savasta-Lagan

“I am so happy to be part of the RMC family.  I know that I will learn so much here and that I have been given such an amazing opportunity to help our customers and I look forward us all growing together,” Joy said.

Joy brings over 20 years of experience in the insurance industry to RMC Group.  She has previously worked for Allstate Insurance in a similar Commercial Lines role, and also worked in Employee Benefits at the start of her career for a life insurance company.

Joy graduated from Long Island University with a degree in business administration.  She holds both Life and Health (Florida 2-15) and Property and Casualty (Florida 2-20) licenses.

Mark Ewell, Executive Vice President of Risk with RMC Group, commented, “We are pleased to welcome Joy to our team at RMC, she brings years of experience and a winning “go get it” attitude to the company.”

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Business Insurance Personal Insurance

Insurance Rates are on the Rise

insurance rates on the rise
insurance rates on the rise

Insurance companies have been warning us for years that we were going to be hit hard with rate increases.  And they meant it!

South Florida homeowners are getting hit with insurance rate increases unlike anything we’ve experienced before.  We’re seeing 30% to 40% increases over what people are currently paying and maybe more for some homeowners.

Why Insurance Rates are Increasing

Insurance rates are on the rise thanks to Hurricanes Irma and Michael in Florida, others in Texas and Louisiana, an extremely active fire season, rising claim abuses, an abundance of court litigation, the spike in reinsurance costs and many other reasons.

In addition, insurance companies are getting stricter on their underwriting requirements, including the age of your home and roof, proximity to water, and the county and state in which you live.

What was acceptable last year may not be acceptable this year. Insurance companies are licking their wounds from all the claims activity and increasing their restrictions.

Coverage You Need

At RMC, we can help you find the best coverage for your needs by maximizing your discounts and making sure you get everything that you are entitled to receive.

Not all insurance companies rate risks or look at claim’s history the same way.  Every home is different and comes with different risk.

Contact Us

Let us help you find the perfect fit for your insurance needs without sacrificing the coverage you truly need. We offer free insurance reviews to help you understand what you have and what you need.

Contact RMC Group for a free review or quote today at 239-298-8210 or [email protected].

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Business Insurance Risk Management

‘Tis the Season to Stay Protected

cyber insurance
cyber insurance

As we go into the final weeks of 2020, cyber protection has become vitally important to every company, organization, or individual that uses any form of technology; whether a computer, laptop, cell phone, or server.

Let’s not give the bad apples easy access to our most important assets – personal information and data.

Here are some tips on how to stay protected as we finish out 2020 and move into the new year:

  • Store your file backups off-site
  • Maintain Antivirus and Antimalware software
  • Automate software and application updates
  • Use a firewall whenever possible
  • Disable unnecessary file and media sharing processes
  • Delete old files from the cloud or off-site back-ups
  • Install privacy settings anytime you get new software
  • Use encrypting data software and hardware

We want to wish everyone a wonderful holiday season! So together let’s stay safe, diligent, and make it harder for those with bad intentions to do us harm.

For more information on cyber insurance and how to protect your business, contact RMC Group at 239-298-8210 or [email protected].

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Business Insurance Captive Insurance

How to Go from Salesperson to Advisor with Alternative Risk Strategies

trusted advisor offers more options
trusted advisor offers more options

How can you become a trusted advisor to your clients providing them more value than you currently are? The answer is offering them alternative risk management strategies.

Won’t offering alternative strategies reduce my commissions? Maybe, but you could go from being a commodity salesperson who could be replaced by anyone with a lower renewal offer to a consultant who receives both commissions and consulting fees.

Hear me out…

Say you write both the Property and Casualty Insurance as well as the Employee Benefits for a manufacturer with 200 employees and $45 million in annual revenue.

Sounds like a solid account!

But in 2020, you had to explain that there’s no payout for the $3 million in business income they lost when their plant was shut down due to Covid-19 because they didn’t have direct damage to the plant.

And then in 2021, their overall renewal is going to cost 25% more due to rate increases.

Suddenly, being the agent on their insurance account doesn’t make you feel quite as secure. Particularly when you find out that their investment advisor has been talking to them about captive insurance companies for a while.

What if you had been the one to bring the captive insurance company option to them?

When the denied claim happened, what if you had taken the opportunity to explain that a captive insurance company could write contingent business income? And would pay out if there wasn’t direct physical damage.

A captive insurance company can even cover extra expenses for a manufacturing business like replacement suppliers. So, when their manufacturer in China couldn’t get parts out due to the pandemic, they would have had coverage.

As the advisor, you should always give options to your client. It will show the client that you are more than just an average advisor. It will prove to them that you are a vital team member and that you have their best interest at heart.

Before your next call, what if you came to your client with a plan to increase deductibles on their commercial insurance policies, then covered those gaps through a captive insurance company? Or with a plan to help them insure a layer of their employee benefits themselves and protect against catastrophe with stop-loss which would allow for no increase at renewal?

Then with these new plans and a newly formed a captive insurance company, you can help them understand the new data available that results from the captive. This will create better loss control and coordinating renewals each year to maximize the benefits of a blended strategy as their risk consultant. Suddenly you’ve become a hero and vital team member instead of just another salesperson.

Become the trusted advisor by partnering with RMC Group to find the best solutions for your client. To schedule a call with a RMC professional, click here.

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Business Insurance Captive Insurance Personal Insurance

An Insurance Policy is a Contract

insurance policy is a contract
insurance policy is a contract

When it comes to insurance, one mistake that many people make is failing to read their policy.  Most insureds believe that they understand what their policy covers simply by the name of the policy.  For example, an auto policy covers everything car-related, and a homeowner’s policy covers everything that can happen to your home.  However, this is a big mistake.

An insurance policy is a contract between the insured and the insurance company, and, like any contract, its effect depends upon the language of the contract.  In addition, since contract interpretation is a matter of state law, the state where your policy is issued is a huge factor.  The same language in one state can have a completely different meaning in a different state.

A Business Interruption Policy Doesn’t Cover All Interruptions of Business

The need to read your policy has never been more clearly illustrated than during the Covid-19 pandemic, which has affected businesses from the hospitality sector to the travel industry to medical practices.  Whether as a result of government orders or the fear of customers to leave their homes, businesses of all types have either had to shut down completely or reduce their capacity.  As a result, businesses have lost significant revenue during this time.  Fortunately, many of these businesses have business interruption insurance policies and have asserted claims under their policies.  Unfortunately, without exception, the insurance companies issuing those policies have denied coverage.  Why?

The quick and cynical answer is that the insurance companies do not want to pay these claims.  The full extent of business loss in the American economy is not yet clear.  However, one estimate is that businesses have been losing close to $40 billion a month.  Yet, the entire property and casualty insurance industry has collected approximately $6 billion in premiums.  Clearly, the premiums will not cover the losses.  However, another reason may be that the insurance companies are simply reading the language of the policies and enforcing the policies as written.

The typical business interruption policy contains language that protects a business against the inability to operate due to loss or damage to property.  In most states, the courts have interpreted this language to require actual physical damage to a business’ building.  Without demonstrated physical damage to property, there is no coverage.

Claims Have Turned to Lawsuits

The result has been that, since the pandemic began, over 5,000 lawsuits have been filed against insurance companies.  While none has been fully adjudicated yet, we are beginning to see some results.  In most cases, an insurance company will respond to a lawsuit by filing a motion to dismiss.  A motion to dismiss challenges the sufficiency of a complaint, and, by a large margin, insurance companies are prevailing on their motions to dismiss.

In order to overcome a motion to dismiss, a business must allege that its business property was damaged in the same way that it would have been damaged by fire or flood.  This is a difficult bar to eclipse.  Most business closures have been caused by government shut-down orders, rather than actual physical damage to busines property, which prevents its use.  Some plaintiffs have tried to get around this problem by claiming that their property has been damaged by the presence of the Covid-19 virus on the premises.  This has worked but only in a small number of cases.

The reason that this claim has not been more successful is that many business interruption insurance policies contain a virus exclusion.  This virus exclusion was generally added to business interruption policies in 2006.  However, there are some business interruption insurance policies that do not contain a virus exclusion.  In those cases, the plaintiffs have been able to defeat the insurance company’s motion to dismiss.

Governmental Action

Another way in which businesses are trying to get around the “physical loss or damage” requirement is by claiming that their business interruption was caused by governmental action.  Therefore, whether their physical location was damaged is irrelevant.  The government order caused the loss of their ability to use their premises.

Again, this approach has been only marginally successful.  In a very small number of states, the courts have said that the policy’s use of the phrase “loss or damage to property” must be read to mean that “loss” and “damage” are not synonymous.  Otherwise, if they meant the same, one would be what courts call “surplusage”.  In other words, either loss or damage would be excess language without adding any real meaning to the phrase.  Courts tend to avoid surplusage.  However, this argument has worked in only a few states.  In most states, the courts have said that the typical business interruption insurance policy does not cover governmental orders, as would a regulatory change policy.

What’s an Insured To Do?

The obvious answer is – READ YOUR POLICY!  However, this is not a very satisfactory answer for a couple of reasons.  The first is that insurance policies are not pictures of clarity.  They are often ambiguous and contain confusing endorsements and exclusions.  Even a highly educated businessperson may have difficulty understanding a policy if he or she is not experienced at reading policies.  The second is that, by the time you’ve read your policy, it is often too late.

The best answer is that you should work with an experienced and knowledgeable insurance professional, like RMC, before you buy your policy.  After all, you wouldn’t sign a contract without first consulting an attorney, and an insurance policy is a contract.  Not only can your insurance advisor explain your policy’s provisions before you have a claim, a professional advisor will have access to the policies of multiple companies and can find the policy that best suits your needs.  In addition, an insurance professional can negotiate with an insurance company to obtain coverage that is not part of the standard form policy.

A second reason to work with a professional is that the professional can introduce you to innovative concepts, like a captive insurance company that may better suit your needs.  A captive insurance company is an insurance company formed by a business to insure the risks of the business.  It can work in concert with your commercial insurance, replace some or all of your commercial insurance or insure risks that are not insurable or are prohibitively expensive on the commercial market.  Because you own your captive insurance company, you control the risks that it can assume.  As a result, you can tailor its policies to cover your specific needs.  While it is too late to form a captive to insure against the Coved-19 pandemic, now is the time to plan for the next unexpected risk.

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Business Insurance Personal Insurance

What You Need to Know About Coronavirus and Your Homeowners Insurance

homeowners and coronavirus
homeowners and coronavirus

Your homeowners insurance safeguards you against financial loss in the event your home and belongings are damaged. It also covers you if you’re found liable for an accident on your property. So, what does this have to do with the COVID-19 pandemic?

COVID-19 has affected nearly every aspect of daily life. It’s impacting businesses across multiple industries and changing the landscape for many types of insurance.

But what about homeowners insurance?

The virus itself doesn’t have much of an impact on homeowners insurance.  But, the fallout may. People are spending more time at home working and schooling their kids. It’s a good time to double check and make any necessary changes to your insurance coverage.

Also, if you find yourself needing to make a claim, the claims process may have changed.  Your insurance company may not be sending claims adjusters into the field. Insurers are moving toward an online claims process during the pandemic. That means you will be recording damage via photo and/or video and submitting evidence to the company online.

Read on to learn more about:

  1. How COVID-19 and related lifestyle changes might affect your needs for homeowners insurance coverage
  2. How COVID-19 could impact your insurance claims
  3. How insurers are responding and adapting to the pandemic

Your Homeowners Insurance Coverage Needs

Coronavirus doesn’t impact personal property, so it’s unlikely that you will need to make any changes to your property coverage. However, the virus does impact the amount of time that people spend at home, and more time at home means more potential for accidents. You may find that you need more, or different, liability coverage.

Many people are at home working remotely for the first time. This arrangement often translates to more business assets under your personal roof. If you fall into this category, a home business endorsement might be necessary to cover your work assets, like computers and other equipment.

If you rent out a property or a room on home sharing apps like Airbnb, it’s very likely that travel restrictions and social distancing are keeping people from using your vacation rental. You should be able to temporarily halt your coverage until you need it again.

Let’s explore each of these in more depth.

Liability Coverage

If anyone in your household, including pets, causes damage to someone else’s property, then your personal liability coverage will protect you.

Now that your neighbors and kids are home from work and school, more people are out walking around.  It’s even more important that you take measures to protect yourself.

Look around your property and consider what might attract a child who’s out wandering the neighborhood. Do you have a pool? A backyard swing set that’s not fully fenced? A dog that sits outside on a leash or in a run? Any of those could result in an accident that exposes you to liability.

Adults could get hurt on your property as well.

A dog out for a walk might decide to follow a scent, causing someone to trip and fall. You never know what will happen.  So, it’s a good idea to have at least $300,000 of personal liability coverage on your home insurance policy.

If you do have a pet, find out whether you’re covered for animal related damages. Some policies exclude certain breeds.

Home Business Equipment Coverage

If COVID-19 has you working from home, find out how much of your business property is covered under your homeowners policy. Most policies only cover $2,500 for business equipment, and you may have more in your makeshift home office.

Fortunately, many insurers offer business equipment endorsements to protect your work equipment. These endorsements give you up to $5,000, and in some cases up to $10,000 of coverage. Call your agent to find out your options for increasing your business equipment limit.

Short-Term Rental Coverage

Do you have a room or second property that you rent out through Airbnb, VRBO, or a similar company? Unless you rent regularly enough to need business coverage, your coverage probably takes the form of an endorsement or rider on your regular policy.

There’s a good chance that you’re not using that coverage right now and won’t need it for a while. Ask your insurer if you can pause the coverage until you need it again.

How COVID-19 Impacts Homeowners Insurance Claims

Even before the coronavirus pandemic, online and automated claims processing started to become a trend. Now, social distancing means that it’s no longer an option for most people to have an adjuster come to their homes, so virtual claims are the new norm.

Much of the claims process is the same. The primary difference is that, after you file a claim, you won’t wait for someone to come inspect the damage. Instead, you write up a report in your own words, make a list of what was damaged or stolen, and take photos or videos as evidence of the damage. Then you’ll submit your report and evidence virtually and await your reimbursement.

Insurers might still insist on sending adjusters for larger claims, but you can expect that to happen less frequently.

How Are Home Insurance Companies Responding?

Online claims adjustment isn’t the only process that insurers are changing during the crisis. Some are offering financial aid and forgiveness to customers who are experiencing financial difficulties due to closures and cancellations.

In California, Insurance Commissioner Ricardo Lara has called for companies to offer a minimum 60-day grace period for payments. Pennsylvania, Wisconsin, and several other states are also asking insurers to waive late charges and extend grace periods. David Sampson of the American Property Casualty Insurance Association (APCIA) has asked all insurers nationwide to be similarly flexible and to relax deadlines around claims filing.

Many companies in the homeowners insurance space are extending inspection deadlines in cases where homes require repairs for policies to remain in place. Insurance company representatives may be working from home, but policyholders shouldn’t expect disruptions in service.

These are industry-wide guidelines and patterns, but every insurer will be making its own decisions. If anything about your coverage is in question, give us a call. We are standing by and fully operational to provide you with customer support.

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Business Insurance Captive Insurance Compliance Update Technical Memorandum

Further DOL Guidance on Families First Coronavirus Response Act

DOL Update
DOL Update

Shortly after publishing its FAQ on the Families First Coronavirus Response Act (the “Act”), the Department of Labor (DOL) issued Field Assistance Bulletin No. 2020-1 (the “Bulletin”).

What does the Bulletin mean for business?

The Bulletin announces a temporary delay in the enforcement of the Act, which goes into effect on April 1, 2020.

The DOL states that it will not bring enforcement actions against employers who are making a good faith effort to comply until after April 17, 2020.

If your business is subject to the Act, you should begin making changes to comply with its requirements.

The Bulletin states:

The Department will not bring enforcement actions against any public or private employer for violations of the Act occurring within 30 days of the enactment of the Act, i.e. March 18 through April 17, 2020, provided the employer has made good faith efforts to comply with the Act.

So, the question is, what constitutes a good faith effort to comply with the Act?

The DOL sets forth three conditions, all of which must be present for an employer to be treated as having made a good faith effort to comply:

  1. An employer must remedy any violation, including making all employees whole
  2. The violations must not be willful. A violation is willful if an employer “either knew or showed reckless disregard for the matter of whether its conduct was prohibited”.
  3. The employer provides the DOL with a written commitment to comply with the requirements of the Act in the future.

The stay on enforcement will be lifted on April 17, 2020.

In the meantime, the DOL will take enforcement action against an employer who violates the Act willfully, fails to provide a written commitment to the DOL regarding future compliance with the Act, or fails to remedy the violation.

While not permanent, this temporary stay should give employers some breathing room while trying to figure out how to comply.

Is your business affected by the DOL’s Bulletin?

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Business Insurance Health and Benefits Technical Memorandum

What Employers Should Know About Labor Department’s Guidance On Families First Coronavirus Response Act

DOL
DOL

On March 24, 2020, the Department of Labor (DOL) issued an FAQ to provide guidance for the Families First Coronavirus Response Act (the “Act”). This is their first effort at answering some questions.

What do we know from this guidance?
1) Paid Leave Provisions Begin April 1st

The Act’s paid leave provisions are effective April 1, 2020, and will extend to December 31, 2020.

This is slightly interesting in that the Act says it will become effective April 2, 2020. The FAQ provides no explanation for why the DOL changed the effective date of the Act’s provisions.

It says the relevant date for making this determination is the date that an employee requests leave under the Act.

So, for example, if, on the date that Jim asks for leave under the Act, the employer has 505 employees, Jim is not eligible for paid leave under the Act.

However, if, a week later, when John asks for leave, the employer has 495 employees, then John is eligible for leave under the Act.

2) Independent contractors are not covered under the Act

If an employer has multiple locations, employees in all locations are considered when tallying the total number.

However, if a corporation has an ownership interest in another corporation, the corporations are generally treated as separate entities, unless they are considered joint employers under the Fair Labor Standards Act.

3) The Act Only Applies For Businesses With Under 500 Employees

The FAQ makes clear that the Act does not apply to employers with more than 500 employees.

4) Fewer Than 50 Employees May Be Exempt

Employers with fewer than 50 employees may be exempt from the requirements of the Act. The criteria for the exemption will be addressed in the regulations.

5) Part-Time Employees Are Entitled To Benefits

A part-time employee is entitled to be paid for the average number of hours worked. You calculate their paid leave period based upon the number of hours that the employee is normally scheduled to work. If the normal hours are unknown or the employee’s hours fluctuate, then you can use a 6-month average.

6) Sick Pay and Overtime Are Included, With Capped Hours

When calculating sick pay, overtime hours are included. However, the amount of hours are capped at 80. So, if an employee is scheduled to work 50 hours in one week, you can pay for 50 hours for that week. But, the employee can only be paid for 30 hours the next week.

7) Family And Medical Leave Sick Pay Is Calculated Differently

The payment rates for paid sick leave and family and medical leave under the Act are different. So, it is important for you to determine under which part of the Act the employee seeks to qualify. An employee receiving sick pay is entitled to full pay with a cap of $511 per day. An employee taking family and medical leave is entitled to two-thirds of normal pay.

8) Benefits Are Not Retroactive

The Act is not retroactive. However, it provides a new and separate benefit. So, an employee who took sick pay before April 1, 2020, is still eligible to take sick pay under the Act after April 1, 2020.

We will provide more information as it becomes available from the Department of Labor.

Not sure how these changes affect your company?

Leave a comment below or contact us with your questions.

Categories
Business Insurance Captive Insurance

What Does IRS Letter 6336 Mean For Your Captive?

IRS Captive Letter
IRS Captive Letter

It has come to our attention that the IRS recently sent a letter (Letter 6336) to all taxpayers who filed a Form 8886 in connection with their participation in a so-called micro-captive transaction.

How does this impact micro-captives?

This letter is not an existing IRS form letter but was specifically crafted for micro-captive transactions.

There is no need to respond to the letter unless you have shut down your captive in the last few years.

It has no legal effect and is nothing new.

The IRS is attempting to induce business owners to abandon their captives.

The letter advises taxpayers that the IRS has won “several” Tax Court cases on the basis that “certain micro-captive arrangements are not eligible for claimed Federal tax benefits”.

What the letter leaves out is that these “several cases” refer to only three, of which one has been appealed. Additionally, arrangements that lost in Tax Court had issues that are no longer generally present in the industry.

The captive insurance industry is hopeful to get a fair hearing in the Appeals Court.

So, what should you do in response to this letter?

As long as you formed your captive for legitimate business reasons, you can and should maintain your captive.

In addition, if your captive made an election under section 831(b) of the Internal Revenue Code, you must continue to attach a Form 8886 to your tax returns.

This includes not only the captive, but the insured business and the owners of the captive and the insured business.

Furthermore, the IRS letter suggests that you consult with your independent tax advisor. This is a good idea, and something that we always recommend.

Conclusion

It is no secret that the IRS does not like micro-captives and that it has been threatening increased audits for several years. And, this letter may forecast increased audit activity.

However, a captive insurance company is a legitimate risk management tool.

In addition, Congress specifically provided a tax benefit for small insurance companies, both captives and non-captives.

Small and mid-sized businesses should not let the IRS scare them from implementing a legitimate risk management tool; especially at a time when the commercial market is hardening.

Do you have more questions about this letter?

Please feel free to comment below or contact us for help.