
The History of 831(b) Micro Captives: A Timeline of Key Developments
Published: Jan 30, 2025
The 831(b) micro captive tax election has played a crucial role in helping businesses self-insure against unforeseen risks. Since its introduction in 1986, this provision has evolved significantly, influenced by legislative changes, case law, and economic shifts. Below is a timeline of key events that have shaped the 831(b) micro captive insurance landscape over the years.
1986: Introduction of Section 831(b)
The 831(b) tax election was introduced as part of the Tax Reform Act of 1986. This legislation was a response to the liability crisis of the 1980s, which mirrors the challenges seen today in the Property & Casualty Insurance market.
1990s: Corporate Utilization
Major corporations, including Fortune 500 companies like UPS and Rent-A-Center, began utilizing Section 831 of the tax code to self-insure their risks, recognizing its potential benefits.
Early 2000s: Formation of the First 831(b) Plans
Businesses started leveraging 831(b) micro captive insurance to self-insure risks that were not typically covered by commercial insurance policies.
2002: Revenue Ruling 2002-89
The IRS issued this ruling to clarify when arrangements between a parent company and its captive insurer qualify as insurance for tax purposes.
2009: Revenue Ruling 2009-26
This ruling provided further clarification on how the IRS evaluates the transfer of risk and risk distribution, helping to define acceptable 831(b) micro captives.
2015: The PATH Act and Premium Limit Increase
The Protecting Americans from Tax Hikes (PATH) Act brought significant changes to 831(b) Plans. It increased the premium limit from $1.2 million to $2.2 million (adjusted for inflation) and introduced diversification requirements to curb potential abuses.
2016: IRS Notice 2016-66
The IRS heightened disclosure requirements for 831(b) transactions, increasing scrutiny of these structures.
2017: Avrahami v. Commissioner
In a landmark case, the Tax Court ruled against a taxpayer who had used an 831(b) Plan abusively. This case highlighted key warning signs of improper 831(b) usage. Learn the 5 warning signs of an abusive 831(b) Plan >>
2019: Syzygy Insurance Co. v. Commissioner
This case further reinforced the legitimacy criteria for 831(b) Plans, solidifying the importance of the 4-Part Test in evaluating compliance.
2020: COVID-19 Validates the Importance of 831(b) Plans
During the pandemic, many traditional business interruption claims were denied by insurers. However, businesses with 831(b) Plans were able to weather the storm more effectively, leading to a surge in interest in these alternative risk strategies. Read more >>
2021: Caylor Land v. Commissioner
Another abusive 831(b) Plan was struck down in court, reinforcing previous rulings. The court declared, “we will break no new ground today.” Read more >>
2021: IRS Concedes in Puglisi v. Commissioner
Despite aggressive posturing and the issuance of soft letter warnings to 831(b) participants, the IRS ultimately conceded in this case. Read more >>
2023: Proposed IRS Regulations Introduced
The IRS proposed new regulations that deviate from Congress’s established guidelines regarding ownership requirements, creating confusion and inconsistencies in interpretation. Read more >>
2024: The Hardening of the Property & Casualty Insurance Market
As insurers continue to exit various states, businesses increasingly turn to alternative risk strategies such as 831(b) Plans to secure their financial future. Read more >>
As the landscape of 831(b) Plans continues to evolve, staying informed about key legal, regulatory, and economic developments is essential. For businesses seeking alternative risk management strategies, 831(b) Plans remain a powerful tool—provided they are structured correctly and in compliance with regulatory standards.
Interested in learning how an 831(b) Plan could benefit your business? Contact us today for more information.