Protecting 831(b)

A Call to Action for Congress

Congress’s leadership in codifying Section 831(b) of the tax code stands as a testament to its commitment to small businesses, providing them with an essential tool to manage unforeseen risks. This bipartisan legislation has helped countless entrepreneurs stabilize their operations and build resilience in an increasingly unpredictable economic landscape. However, regulatory uncertainty and IRS scrutiny threaten the viability of 831(b) micro-captives, putting small businesses at risk of losing a critical risk management solution. Now, more than ever, Congress must act to safeguard and strengthen 831(b) micro-captives through common-sense reforms.

The Ongoing Need for 831(b) Micro-Captives

Small and mid-sized businesses face an evolving set of risks that traditional insurance often fails to cover adequately. Congress originally recognized this when it passed Section 831(b) to allow small businesses to self-insure against emerging and underinsured risks. This structure has provided a lifeline for businesses struggling with gaps in commercial insurance coverage. However, despite the clear intent of the law, micro-captives are now under excessive scrutiny, with the IRS targeting legitimate captive structures as tax avoidance vehicles rather than recognizing their role in responsible risk management.

If policymakers do not take action, the uncertainty surrounding 831(b) micro-captives will discourage businesses from using them, undermining their ability to prepare for economic volatility, gaps in property coverage, cyber threats, and other emerging risks. Without a viable alternative, many small businesses will be left exposed to risks that could ultimately force them to shut their doors.

A Path Forward: Common-Sense Reforms to Protect Small Businesses

The 831(b) Institute supports targeted reforms that preserve the integrity of micro-captives while addressing regulatory concerns. To ensure these captives continue to serve their intended purpose, Congress should consider the following safe harbors and rule refinements:

  1. Safe Harbor for Insurance Standards Compliance – Establish a presumption of legitimacy for 831(b) micro-captives that issue policies aligning with widely recognized industry standards, such as those set by the Insurance Services Office (ISO). Compliance with these standards should serve as strong evidence of genuine risk management.

  2. Safe Harbor for Claims Activity – Recognize 831(b) micro-captives that regularly pay validated claims as legitimate insurance entities. If a captive has incurred and processed claims following a defined claims process, it should be presumed compliant with insurance principles.

  3. Contribution Limits Based on Gross Receipts – Implement reasonable, proportional contribution limits tied to a percentage of an insured company’s gross receipts. This would ensure that micro-captives are used for legitimate risk management rather than excessive wealth accumulation.

  4. Prohibition on Abusive Ownership Structures—To prevent potential tax abuses, Micro-captive ownership should be limited to individuals or entities directly tied to the insured business. This would restrict the use of irrevocable trusts, family limited partnerships, and other estate-planning tools.

  5. Clarification of Investment Restrictions – Explicitly disallow investments in life insurance and annuities within micro-captives to reinforce their purpose as risk-financing tools rather than estate-planning or tax avoidance vehicles.

  6. Guidance on Multiple Captive Ownership – Prevent businesses from forming multiple micro-captives for the sole purpose of increasing contributions, while allowing exceptions for legitimate business purposes such as segregating distinct risks.

By implementing these reforms, Congress can strengthen 831(b) micro-captives as a legitimate, necessary tool for small businesses while addressing concerns about potential misuse.

Congress Must Act – Your Voice Matters

We need your help to ensure these reforms become reality. If you are an 831(b) owner, industry participant, or client who relies on micro-captives, now is the time to make your voice heard. Congress needs to understand the real-world impact of regulatory uncertainty and why protecting 831(b) captives is essential for small business resilience.

The 831(b) Institute makes it easy for you to take action:

📩 Write Your Representative & Senators – We provide ready-to-use templates to send a message to Congress urging support for 831(b) reforms.

📰 Author an Editorial – Raise awareness by publishing an op-ed in your local newspaper or industry journal. Our team can ghostwrite an editorial for you to ensure your message is heard.

💬 Join the Conversation – Share your experiences with 831(b) captives and how they have helped your business navigate risk. Your story can make a difference in shaping the legislative debate.

Congress originally enacted Section 831(b) to protect small businesses—now it must reaffirm its commitment by supporting reforms that keep 831(b) micro-captives viable. Let’s work together to ensure that small and mid-sized businesses continue to have access to the risk management tools they need to thrive.

Take action today—your voice can help secure the future of 831(b) micro-captives!