SECTION 831(b)
SECTION 831(b) – An “831(b)” captive is an insurance company whose premiums do not exceed $1,200,000 per year and which elects to have those premiums exempted from taxation. If the captive has proper risk distribution, then the insured company can deduct the premium being paid to the captive, while the captive pays no income taxes on that premium. After the payment of losses and expenses, any profits in that captive can be distributed at a favorable dividend rate or can be distributed in a full liquidation of the captive, and the shareholders will receive those accumulated profits at capital gains rates. And if the captive is owned by trusts or adult children, the entrepreneur can also enhance the benefits in his or her estate plan by side stepping the estate tax.