Atlanta’s John Marshall Law School professor Beckett Cantley was cited in a recent article by Forbes Magazine discussing life insurance and 831(b) captive insurance companies. His extensive experience on the issue, in addition to his recent appearance as a panelist at the Spring Meeting of the Business Law Section of the American Bar Association made Professor Cantley an excellent source of information on the subject.
The excerpt reads:
The panel featured Prof. Beckett Cantley of John Marshal Law School in Atlanta, who discussed the fact that the IRS is taking a hard look at 831(b) captives that have purchased life insurance, and seem to be following their exact same avenues of attack that finally took down abusive VEBAs, 412(i), 419A(f)(6), and other abusive plans that offered pre-tax life insurance. Namely, the IRS is now conducting various promoter audits to obtain the client lists of the insurance managers whose 831(b) captives are involved with life insurance, as a possible predicate to making the purchase of life insurance within a captive a “listed transaction”, i.e., a presumed tax shelter that carries onerous reporting requirements and possibly very significant penalties.
Professor Cantley also spoke at some length about the technical issues about why the IRS would be absolutely right in taking down 831(b) companies with significant amounts of life insurance, but instead of me paraphrasing him, it is probably better to just read his excellent article on the subject: Cantley, Beckett G., Repeat as Necessary: Historical IRS Policy Weapons to Combat Conduit Captive Insurance Company Deductible Purchases of Life Insurance (February 2013). U. C. Davis Business Law Journal, Vol. 13, 2013. Available at SSRN: http://ssrn.com/abstract=2315868
And Professor Cantley is nothing like the only voice in the wilderness on this issue: Various other prominent captive tax attorneys have indicated that having an 831(b) captive be structured to invest significant assets in a life insurance policy is probably a pretty bad idea, and off-the-record statements from IRS and Treasury officials (not to mention the ongoing promoter audits) show that this is an area of intense interest, if not concern.
Prior to teaching at John Marshall, Professor Cantley served as a law professor at both St.Thomas University School of Law (Miami, FL) and in the International Tax and Financial Services Program (LL.M.) at Thomas Jefferson School of Law (San Diego, CA). He currently also teaches International Taxation at Northeastern University. In addition to the courses he currently teaches at AJMLS and NEU, he has previously taught several other JD and LL.M. level courses, including: Tax I; Tax II; Partnership Taxation; and Business Entities. Prior to entering academia, Professor Cantley’s private practice included serving as an Associate Attorney with Oliver Maner & Gray LLP in Savannah, GA.