The Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) made some significant changes to the executive pay area for tax-exempt organizations with the imposition of a new excise tax on certain amounts paid to some employees of the tax-exempt organization. Imposing taxation in areas which previously had no such result will warrant tax-exempt organizations reviewing their compensation structures in light of the new rules to ensure not only an understanding of the new rules but to evaluate feasible options in minimizing any taxes.
IRS Rules Captive Reinsurance Arrangement Involving Retiree Medical Benefits Qualifies as Insurance for Federal Tax Purposes
On May 18, 2014, the Internal Revenue Service (IRS) ruled that an employer’s wholly owned captive insurance subsidiary could reinsure the employer’s retiree medical benefit risks and still qualify as insurance for federal tax purposes, even though the retiree medical reinsurance policy was the only business of the captive. The IRS held that the insured risks were those of the retirees and their dependents, not of the employer or the employer’s voluntary employee benefit association that purchased the insurance policy reinsured through the captive. The ruling will serve as guidance for employers seeking to structure and implement similar captive reinsurance arrangements that are eligible for favorable federal tax treatment.