Securitas v. Commissioner Tax Court 10-29-14

Securitas Holdings, Inc. and Subsidiaries, Petitioner v. Commissioner of Internal Revenue, Respondent
Docket No. 21206-10
Filed October 29, 2014

Ruling in the Securitas v. Commissioner captive insurance case was issued late yesterday afternoon by the United States Tax Court.  The Court found the captive insurance arrangement was valid.  It was somewhat similar to Rent-A-Center – a “brother-sister” case with a guaranty and a large percentage of the premium paid by one subsidiary.  It distinguished a guaranty from adverse cases, and looked more to the exposure units, than the concentration of risk in determining adequate risk distribution.

Key Points:
The taxpayer received Deficiency Notices for tax years 2003 and 2004, resulting from partial dis-allowance of deductions for insurance expenses related to its captive insurance arrangement.

It is interesting to note that premiums paid in tax year 2003 were essentially spread over just 4 entities and over 88% of premiums paid in tax year 2004 were allocated to just one entity.

The court examined the elements of risk shifting, risk distribution and whether the captive arrangement constituted insurance in the commonly accepted sense.  The court noted that the premiums were reasonable and reviewed by outside actuaries, premiums were paid, losses were satisfied, the captive was operated, organized and regulated as an insurance company and met other factors indicating insurance in the commonly accepted sense.

The court decision was for the taxpayer, which found that the captive arrangement was insurance for federal income tax purposes and that premiums paid were tax-deductible in this decision for the taxpayer.

Click here to view the case filing – Securitas v Commissioner Tax Court 10-29-14