On February 20, 2014, the IRS issued the latest set of regulations to clarify and amend the Foreign Account Tax Compliance Act (FATCA) final regulations that were issued in January 2013. FATCA was enacted in 2010 by Congress to target U.S. taxpayers using foreign accounts to evade taxes. Many of the latest changes were originally introduced in an IRS Notice, which was released late last year.
Of particular note is a favorable amendment to the definition of “U.S. person” to include a foreign insurance company that has made an election under 953(d) and that is not a “specified insurance company.” This is good news for offshore captive insurance companies.
Most captive insurance companies are typically formed offshore but elect under 953(d) to be taxed domestically on Form 1120-PC, U.S. Property and Casualty Insurance Company Tax Return. Although these companies are taxed as U.S. entities, they were still considered to be foreign entities under the final FATCA regulations issued last January. As such, their owners were required to file Form 8938, Statement of Specified Foreign Financial Assets, with their personal tax returns for 2011 and 2012 if a certain threshold was met.
The amendment to the definition of a U.S. person will now exclude the vast majority of foreign captive insurance companies from the FATCA reporting requirements.
If you have a foreign insurance company and have any questions regarding the 953(d) election or the FATCA rules in general, please contact a member of our International Tax department.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.