WASHINGTON — The Internal Revenue Service has just dropped a proposed rule (and cancelled a scheduled public hearing) that would have eliminated a key tax break used by many captive insurance companies. In a brief notice in the Federal Register, the IRS said it is withdrawing the rule it proposed last September that would have taken away a favorable tax rule for sponsors that use their captives to fund risks of various corporate affiliates and that file a consolidated tax return covering the affiliates and the captive. The proposed rule triggered an unprecedented amount of lobbying by the captive industry to urge the IRS to withdraw the proposed rule. The IRS said, though, it would continue to study the issue.

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