Why has the IRS fought captive insurance for so long?

He starts a long way back, with the London coffee houses where underwriters wrote their names beneath a contract, and with the mid century founder who could not buy insurance for a mining operation and built his own company instead. The word captive, he says, came from that company being captive to a larger one.

The dispute begins once captives become common. The tax authority's first position was that a captive is effectively a wallet, so premium paid into it is not deductible. Queen's answer is Moline Properties, the case establishing that the corporate form has to be respected, and he says the point came to a head when that precedent was applied to a captive in the Carnation litigation.

The next attempt was the economic family doctrine, the argument that premium washing between related entities is not really insurance. Queen says the Sixth Circuit rejected it in the Humana litigation, and that a further version failed in the Seventh Circuit when the tax authority questioned whether Allstate was a real insurance company because Sears owned it.