Risk Management Firm Executive Dustin Carlson: Why 831(b) Is Getting Another Look from Farmland Owners
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Growing risk may be outweighing previous abuse, Dustin Carlson, President of SRA 831(b) Admin, believes as people weigh potential benefits of micro-captive insurance plans for small and mid-sized businesses.
Farmers, ranchers, and landowners may or may not be familiar with some of the past issues with the federal tax provision known as "831(b)."
It allows certain small insurance companies to finance risks that could be tough to insure through the traditional insurance market.
But for several years, the Internal Revenue Service felt that some people were trying to use it beyond its original purpose. Carlson told American Farmland Owner from his office in Eagle, Idaho, that people need to understand the origination of 831(b) and its purpose.
"831B, it was part of the 1986 Tax Reform Act," Carlson said.
The timing was important.
SRA 831(b), President
831(b) Institute, President
What Is the History of 831(b)?
In 1986, the United States was dealing with a liability insurance crisis. Carlson pointed to a March 1986 Time Magazine cover in his office that reads, "Sorry, America, your insurance has been canceled."
Carlson explained that there were municipalities struggling to obtain liability coverage. Doctors were having trouble finding insurance. Some communities were even removing playground equipment because they couldn't get the necessary coverage.
Congress found a way to give businesses another tool.
"This was a way for businesses to fund risk that they can't buy on the open market," Carlson said. "And that was truly the original purpose of 831B."
How Does 831(b) Apply to Agriculture?
Agriculture had its own insurance challenges. Carlson noted that crop insurance was also changing during that period, creating additional gaps in the marketplace.
The idea was relatively straightforward: If a business faced a risk that traditional insurance companies wouldn't cover, the business could establish an insurance company of its own and set aside money to address that risk.
Then came the abuse.
Carlson said that in the late 2000s, some estate planners began using 831(b) arrangements as an estate-tax strategy rather than primarily to finance legitimate business risks.
"The business owner, the farmer, the doctor, whatever, they were having them fund their 831B, which the 831B, it was magically owned by the grandkids, or the kids," Carlson said.
The result was an attempt to move money outside the business owner's estate.
How Was 831(b) Abused?
This is the warning notice from the IRS about abusing 831(b).
Carlson doesn't mince words about it. "I think it was abuse, absolutely," he said.
Congress responded in 2015 with the PATH Act, which addressed the estate-planning use by restricting ownership involving lineal descendants.
But Congress also changed another part of 831(b). It increased the amount that could be placed into an arrangement, in part because inflation and rising costs had reduced the usefulness of the original limit. Carlson said the limit increased from $1.2 million to $2.4 million with an inflation adjustment.
What Is the 831(b) Contribution Limit in 2026?
The limit has increased again in 2026 to approximately $2.9 million. That is one reason the provision is getting renewed attention from farmers and landowners.
The key, Carlson said, is to start with the risks already covered, and not covered, by existing insurance.
"Definitely go to the exclusions page," he said. "You know, your insurance policy, it gets thicker every year."
The additional pages, Carlson noted, aren't necessarily a sign of additional protection.
"They're adding exclusions to that," he said. "It's not because they're adding more coverage."
For a farmland owner, that could mean examining risks associated with supply interruptions, fertilizer availability, livestock losses, weather events, or other exposures that have become more difficult or expensive to insure.
Carlson pointed to livestock death loss as one example, saying traditional carriers have pulled back some coverage in certain areas. The concept is to use profitable years to prepare for bad ones.
How Can Farmland Owners Use 831(b)?
A farmer might set aside money through an 831(b) arrangement when times are good, then potentially use those funds when an otherwise uninsured or underinsured event creates a major expense.
"There's no shortage of risk in any business," Carlson said.
That may be particularly true in agriculture, where weather, commodity prices, supply chains, disease and geopolitical events can quickly turn into financial problems.
Carlson cited recent wildfires in Idaho as an example of how disasters can cause catastrophic losses that traditional insurers may either limit or exclude from coverage.
The strategy isn't simply about putting money into an account and forgetting about it, either. Carlson said funds can be invested, including in stocks and bonds, and some farmers use futures contracts as another way to manage commodity-price exposure.
There are tax considerations, too. Carlson said the arrangement provides tax deferral on qualifying premiums, while realized investment gains are subject to taxation.
And eventually, the money doesn't simply disappear.
Carlson said distributions can be taken in certain circumstances, while liquidation can result in long-term capital-gains treatment when applicable.
The lesson for farmland owners isn't that 831(b) is a magic tax shelter.
It is that a tool created more than four decades ago to address gaps in the insurance market may have renewed relevance at a time when those gaps are again becoming more apparent.
