Gift Tax Issues

If the premiums paid to the captive are deductible by the payor, they do not represent a gift for gift tax purposes.  Treas. Reg. Section 25.2511-1(g)(1) provides that "the gift tax is not applicable to a transfer for a full and adequate consideration in money or money's worth, or to ordinary business transactions. . . ."  Treas. Reg. section 25.2512-8 further provides that:

Transfers reached by the gift tax are not confined to those only which, being without a valuable consideration, accord with the common law concept of gifts, but embrace as well sales, exchanges, and other dispositions of property for a consideration to the extent that the value of the property transferred by the donor exceeds the value in money or money's worth of consideration was given therefore.  However, a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is bona fide, at arm's length, and free from any donative intend) will be considered made for an adequate and full consideration in money or money's worth. (Emphasis added.)