Changes to Section 831(b) Impact Small Insurers
Aside from extending several pro-taxpayer provisions, the Protecting Americans from Tax Hikes (PATH) Act of 2015 includes the first significant changes to Section 831(b) of the Internal Revenue Code.
As originally written and enacted in 1986, Section 831(b) provided an alternate tax for small property and casualty insurance companies. Those insurance companies with premiums less than $1.2 million annually could elect to be taxed solely on their investment income (rather than the sum of their underwriting and investment income). While many sections of the Internal Revenue Code contain mechanisms to adjust for inflation or are amended more often than every 29 years, Section 831(b) had never been indexed for inflation.
In a recent Captive Insurance Times article, Alan Fine, Partner in Charge, Captive Insurance Advisory Services, discusses how the PATH Act finally addressed this issue, the qualifying diversification requirements the Act adds and questions still left unanswered.