TCIA 13th Annual Conference

Despite a large number of tax court cases, the term risk distribution is still remarkably ill-defined and vague, with the court offering only vague generalities as to the term's exact contours. But central to many cases is a statement that the law of large numbers is somehow involved and required.
But insurance long ago understood that the law of large numbers didn't strictly apply to a pool of risk. The law of large numbers only works when the sampled population complies with i.d.d.--the risks are independent and identically distributed. The latter is most assuredly not a feature of risks in a risk pool.
Ultimately, this means the tax court is requiring a captive to comply with something that it can't.
This panel will look at the following:
1.) Why Helvering v. Legierse, the case that first mentioned the term risk distribution, is a terrible case on which to base most captive insurance law in the Tax Court.
2.) Why the Tax Court's understanding of the risk distribution is mathematically andconceptually flawed
3.) How the insurance world understands risk distribution, how it differs from the Tax Court'scurrent understanding, and why it's superior to current Tax Court precedent.