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13 December 2021

Avrahami captive promoter challenging $11m IRS penalty

Celia Clark, the captive lawyer at the heart of the  Avrahami case, is challenging more than $11 million in penalties imposed by the IRS.

Her  filing with the US district Court of the Southern District of Florida reveals the stiff penalties the IRS is now imposing on promoters of fraudulent micro captives under section 6700 of the US Tax Code. The section, which deals with promoting abusive tax shelters, imposes a penalty of 50% on the gross income from promoter fees. Clark has already paid almost $1.75m already, which she is not claiming back.

Clark, who was  sued by the defendants in the Avrahami case, makes a series of complaints against the IRS. These include that it started an investigation to determine whether Clark should be subject to penalty under s6700 in 2012, but let her continue the captives practice until 2017. She also claims various errors in the assessment of the penalties.

“Congress has explicitly encouraged and promoted microcaptive insurance companies by conferring upon them favourable tax treatment under 26 USC § 831(b),” the complaint reads.

“Notwithstanding this Congressional intent, the IRS has sought to destroy the

microcaptive insurance industry. It has not done so by promulgating regulations, issuing revenue rulings, or providing affirmative guidance that taxpayers and tax practitioners could follow. Rather, the IRS has engaged in the unlawful “administrative repeal” of IRC § 831(b), thwarting Congress’s intent by wrongfully penalizing taxpayers and practitioners in the microcaptive space in a concerted effort to drive them out of that business.”

The IRS has yet to file its response.