CIC Services criticises IRS after micro-captive injunction denied

28-04-2017

The US District Court for the Eastern District of Tennessee has denied the request of captive managers and consulting firms CIC Services and Ryan to seek injunctive relief from Notice 2016-66.

CIC Services and Ryan filed a lawsuit on March 27, 2017, against the Internal Revenue Service (IRS) seeking an injunction from the federal district court to prohibit the enforcement of Notice 2016-66.

CIC Services previously filed a lawsuit on December 28, 2016, which was dropped after the IRS extended the reporting deadline to May 1.

Notice 2016-66 has been widely criticised within the captive insurance industry, and CIC Services has labelled it as "unnecessarily burdensome, an affront to Congress, abusive and even downright vindictive."

The 2016-66 disclosure had previously come under fire for labelling micro-captives as "transactions of interest", suggesting they are potential vehicle for tax avoidance or evasion.

As a result, the IRS introduced reporting requirements for both micro-captives and their advisors to comply with – a failure to do so resulting in a penalty.

Sean King, a founding principal of CIC Services, had previously commented on the matter earlier in the year, suggesting that the IRS has declined to provide taxpayers or the captive industry with any substantive guidance useful in distinguishing abusive captive insurance arrangements from perfectly legitimate ones.

"Because the informal guidance offered to date implicates at least as many legitimate micro-captives as abusive ones, such guidance has served only to blur the lines between legitimate and illegitimate structures,” he said.

“In fact, some IRS agents and Appeals Officers have been quoted on the record as contending that ‘all Section 831(b) captives are abusive’.”


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CIC Services, Ryan, IRS, Regulation, Tax, North America

Captive International