On Jan. 13, 2025, the IRS published Revenue Procedure 2025-13 (Rev. Proc. 2025-13), which allowed for a simplified and automatic mechanism for non-life insurance companies to revoke previously made elections under Section 831(b). Basically, taxpayers wishing to revoke their election no longer needed to request a private letter ruling and pay the associated user fee.  

Let’s look at some of the important aspects of the new procedure:

Eligibility criteria:

• The insurance company must have an active Section 831(b) election.
• The company must not have net operating losses from a year prior to the effective date of the Section 831(b) election that can be carried forward to the revocation year.
• The request must be timely submitted — on or before the due date of the federal tax return for the revocation year (including extensions).

Automatic consent:

• Taxpayers no longer need a letter ruling or pay the associated user fees to revoke a Section 831(b) election.
• Revocation can be requested for the current or prior taxable year if the request is submitted by the filing deadline (including extensions). For example, a calendar year taxpayer may request the revocation during 2025 for either the 2025 calendar year or for the 2024 calendar year, provided the request was submitted before the taxpayer files a timely-filed return (including extensions). 

Restrictions:

• Companies opting for revocation must agree not to make a Section 831(b) election for five taxable years following the revocation.

Streamlined submission process

To request automatic consent, companies must submit:

• A written revocation request, including taxpayer identification details and the desired revocation year
• Signed representations affirming compliance with eligibility criteria
• A declaration under penalties of perjury

Requests can be submitted either by mail or fax to the Commissioner of Internal Revenue.

What are the Implications for Taxpayers from Rev. Proc. 2025-13?

The revised procedure significantly reduces administrative burdens for eligible insurance companies. It reflects the IRS response to industry feedback, including concerns raised during the proposed regulations on micro-captive transactions in 2023 that have since been published in final form.

Rev. Proc. 2025-13 also represents a significant planning opportunity for current captive insurers with an active Section 831(b) election and for business owners contemplating their captive insurance needs. Growing captives should consider whether the simplified election procedure aligns with their business trajectory. Additionally, captives looking to optimize tax positions across different taxable years should consider the flexibility in timing for their strategic planning. 

What is the Effective Date for Rev. Proc. 2025-13?

Rev. Proc. 2025-13 is effective for revocation requests submitted on or after Jan. 13, 2025. Taxpayers with pending letter ruling requests as of this date may opt to convert their requests to the automatic consent process under Rev. Proc. 2025-13.

TAGS: Tax Services Overview, Insurance, Federal Tax