Advocating for Micro-Captives: A Conversation with Dustin Carlson of the 831(b) Institute

Editor's Note: Captive.com spoke with Dustin Carlson, CPCU, president of the 831(b) Institute and SRA 831(b) Admin, to discuss the current state of the micro-captive industry. In this interview, Mr. Carlson shares insights on regulatory and legislative developments, common misconceptions about micro-captives, and how the 831(b) Institute works with organizations like Minicap to support advocacy efforts. He also offers practical guidance for captive owners and managers interested in becoming more involved in the process.

The 831(b) Institute has been highly active in advocating for micro-captives. How does the Institute collaborate with organizations like Minicap—the Micro Captive Alliance and Protection, an advocacy group focused on defending the legitimate use of micro-captives and promoting fair regulatory treatment—to drive meaningful regulatory and legislative change in this space?

While the 831(b) Institute has been active and effective in micro-captive advocacy, our success lies heavily in the support of partners in the industry. Through collaboration with organizations like Minicap, the Institute has been able to advocate alongside a coalition of voices and micro-captive stakeholders. This united front allows us two advantages over advocating on our own: (1) We are able to communicate and learn from fellow stakeholders, share their stories, and build a more comprehensive approach to legislative and regulatory advocacy. (2) The united front allows us to speak with a louder voice. By calling on stakeholders throughout the nation, we work to unite the voices to implement a more impactful change that can benefit the captive industry as a whole.

Regulatory scrutiny of micro-captives, particularly from the Internal Revenue Service (IRS), has been a persistent challenge over the years. How does the 831(b) Institute approach defending the legitimate use of micro-captives while addressing the concerns raised by regulators?

The unfortunate truth is that the actions of a few bad actors have led to increased scrutiny of micro-captives from regulatory agencies, like the IRS, for years. While we recognize there are bad actors in the space that take advantage of 831(b) for tax incentives, this broad generalization of micro-captive managers is an unfair categorization of the thousands of small-business owners who rely on micro-captives to insure their businesses against fortuitous risks.

As mainstream insurers continue to reduce their coverage offerings and increase premiums, more small businesses are turning toward alternative insurance options like micro-captives to protect themselves.

The root of the issue is this: the language outlining micro-captive insurance and the regulations surrounding them are confusing and unclear in nature. Our approach is that of common sense—by clarifying the language, we can disincentivize bad actors from abusing the benefits while simultaneously crafting clear guidelines for good-faith actors to abide by. Clarifying the language is a win-win for micro-captive managers and regulatory agencies alike.

You've previously emphasized the importance of stakeholder engagement in the legislative process. Can you describe how the 831(b) Institute works with groups such as the National Taxpayers Union to align advocacy efforts supporting micro-captives?

Similar to our work with Minicap, we strive to conduct outreach to various networks and micro-captive stakeholders in order to unite our voices in advocating for meaningful regulatory and legislative change.

Groups like the National Taxpayers Union share our mission to advocate for a fair and clear tax system that supports American taxpayers with efficient regulations. Line 831(b) is confusing in nature and requires clarification in order to ensure this Tax Code is fair, simple, and available to the small businesses who need it most.

By uniting our mission, resources, expertise, and voices under a single coalition, we can learn from experiences of our peers and, hopefully, create meaningful and effective changes in the industry.

Many in the captive community are familiar with traditional lobbying but might not fully understand the mechanics behind influencing regulatory shifts. Could you walk us through how the 831(b) Institute approaches policymakers specifically on micro-captive issues?

The 831(b) Institute prides itself on our grassroots coalition-building approach to advocacy. Our approach involves targeted outreach to stakeholders and notable figures in the industry. As we continue to collect more interested members in the micro-captive community, we take a more personal approach to advocating for beneficial regulatory shifts.

By conducting outreach and uniting members of the micro-captive community, we leverage voices throughout the country to contact lawmakers and policymakers nationwide to take a more comprehensive approach to advocacy. While lobbyists definitely play an important part in advocating for rational changes, we believe the voices of impacted citizens, small-business owners, and micro-captive managers can truly share the experience and needs to educate members of Congress on the importance of 831(b) plans and explain the concerns of various policy changes. This targeted approach helps establish credibility and unite multiple voices under the banner of productive change.

Micro-captives have faced their share of misconceptions over the years. What are some of the most persistent misunderstandings you encounter, and how does the Institute work to educate both regulators and the public on their legitimate use?

One of the most recurring misconceptions of micro-captives is that they are a tool useful only for the tax incentives they offer. Viewing micro-captives as nothing more than a tax incentive has led to a negative outlook harming the good-faith actors that rely on this insurance alternative to protect their businesses and livelihoods in light of a declining mainstream insurance market.

The 831(b) Institute is dedicated toward educating small-business owners, micro-captive managers, and regulators on the insurance benefits offered by line 831(b). By sharing examples of good-faith actors whose businesses have benefited from the insurance protections, we are able to highlight the true intent of micro-captives.

Due to these misconceptions, regulatory policies that govern micro-captives are equally misguided. The lack of clear and transparent guidelines not only makes it difficult for good actors to operate in accordance with the rules but opens the door for bad actors to abuse the systems in place—putting a black eye on the industry at large.

For captive managers and owners who want to become more involved in advocacy efforts around micro-captives, what avenues does the 831(b) Institute offer to help them engage effectively?

There is no shortage of advocacy needs for those interested in becoming involved with promoting better regulations and protections of micro-captives.

Our team constantly monitors legislation and regulations that impact micro-captive insurance and is always looking for interested stakeholders to assist in sharing our mission with representatives and regulators. By targeting outreach to legislators and regulators with the influence to enact these necessary changes, we can take a more direct approach to this advocacy work.

Two avenues we see many captive managers and owners take in participating in this advocacy are writing letters to representatives and voicing their opinions in their local media.

Our team is always ready to talk with other members of the micro-captive community, learn from their interests and experiences, and collaborate with them on effective outlets for impactful advocacy. If you are interested in getting involved, I encourage you to contact us or visit our website.

Looking forward, are there any key legislative or regulatory developments on the horizon that you believe will have a significant impact on the micro-captive space, and how is the 831(b) Institute preparing for those changes?

The most impactful piece of legislation currently in the pipeline is the Congressional Review Act (CRA), which allows for the Senate and House, respectively, to approve a joint resolution of disapproval to stop the misguided IRS regulations that were released in January. By invoking the CRA, Congress has the ability to roll back the regulations imposed in the final days of the previous administration and set the industry up for a blank slate of advocacy to clarify and improve the policy language moving forward.

In addition to the CRA, the Trump administration and Congress will also soon be faced with addressing the Tax Cuts and Jobs Act of 2017. Key provisions of this Act are set to expire in December of 2025, and it is up to this Congress to determine if extensions to these provisions will be enacted. It is the 831(b) Institute's hope Congress will keep small businesses in mind and enact 831(b) reform as a part of this tax bill.