If a insurance company receives more than $2.2 million in premiums or has not elected insurance taxation; it is considered a “regular” captive insurance company. To review, the 831(b) company will enjoy tax-free premiums and tax liability on only the investment growth. A regular property-casualty company does not have the same tax treatment.
Non-831(b) companies are taxed on the premium income received. But they are afforded a deduction for legitimate reserves, incurred- but-not-reported (“”) losses, expenses, , claims, etc. So, the non-831(b) company can still avoid paying taxes in circumstances where its approved deductions offset premium income. For example, even though a captive charges $5 million in premiums, it will pay no taxes if it has $500,000 in expenses and IBNR and can actuarially justify of $4.5 million.