Petitioner, a captive insurer domiciled in Anguilla, applied to be a tax-exempt small insurance company under IRC section 501(c)(15), and filed returns on this basis, making an election under IRC section 953(d). The Tax Court concluded this characterization was not appropriate, that Petitioner was not a bona fide insurance company, and that Petitioner should instead be treated as a foreign corporation.

The Tax Court found the reinsurance agreements did not allow Petitioner to effectively distribute risk, and in the absence of risk distribution, “a necessary component of insurance” Petitioner’s transactions were not insurance transactions.

Reserve Mechanical Corp. v. Commissioner of Internal Revenue, Docket No. 14545-16 (U.S. Tax Court June 18, 2018)