Georgia Water Company Challenges IRS Over Tax Deductions
Piedmont Water Co., a water treatment and distribution business in northeast Georgia, has filed a lawsuit against the IRS, claiming the federal government unlawfully disallowed $507,000 worth of tax deductions for insurance premiums. The company had made these premium payments to Fortis Captive Insurance Co., its captive insurance provider.
The government’s decision to deny these deductions was based on the assertion that Fortis did not provide genuine insurance coverage for tax purposes. However, Piedmont Water Co. disputes this conclusion, arguing that Fortis was adequately capitalized, effectively distributed risk, and offered substantial services beyond merely reducing Piedmont’s tax liability.
This lawsuit is part of a larger trend, with over 1,000 similar cases involving captive insurance companies currently in dispute. The outcome of Piedmont’s case could have significant implications for businesses using captive insurance arrangements.
The water company’s legal action highlights the ongoing debate surrounding the tax treatment of captive insurance premiums. While the IRS has been scrutinizing such arrangements, companies like Piedmont maintain that their captive insurance structures are legitimate and deserving of tax recognition.
