Phillip England and Randall Beckie discuss and attempt to dispel the confusion surrounding the tax treatment of cell captives that has been created in the wake of Revenue Ruling 2008-08

 IN REVENUE Ruling 2008-8, the IRS validated a method of analysing the nature of a purported insurance arrangement involving a cell of a segregated cell company (SCC). The IRS’ method is essentially to allow that the cell may be viewed as a separate insurance company for tax purposes if transactions with the cell give rise to risk shifting and risk distribution in keeping with definitional criteria per Revenue Rulings 2002-89, 2002-90 and 2005-40.

The IRS’ method is the same approach that was available to taxpayers based on tax principles that have existed since long before the issuance of Revenue Ruling 2008-8. Indeed, some taxpayers independently had already come to the conclusion that a cell company was allowed to file a separate US insurance company tax return.