CIC brings in new legal challenge against IRS

CIC Services, a Knoxville-based firm that helps small and mid-sized businesses form and manage captive insurance companies, has filed a second lawsuit against the Internal Revenue Service (IRS), challenging what it describes as a continued campaign of regulatory overreach that harms legitimate business owners. 

The complaint, filed in the US District Court for the Eastern District of Tennessee, aims to invalidate a new IRS rule that closely mirrors a previous regulation already struck down in court.

CIC Services previously won a landmark, unanimous U. Supreme Court decision against the IRS in 2021, which established that federal courts could review and block unlawful IRS rules.

That case centred on IRS Notice 2016-66, which the courts later ruled was issued illegally and without the necessary rulemaking procedures.

Despite that victory, the IRS recently issued a Final Rule—Micro-Captive Listed Transactions and Micro-Captive Transactions of Interest—which again targets captive insurance companies that serve small and mid-sized businesses. CIC Services argues the new rule imposes burdensome reporting requirements, creates reputational risk, and threatens both participants and advisors with potential penalties and criminal liability—without supporting evidence or compliance with administrative law.

Captive insurance allows companies to insure risks that are difficult or expensive to cover in the commercial market. CIC said that while Fortune 500 companies have long benefited from captive structures, Congress created Section 831(b) of the Internal Revenue Code to ensure that small and mid-sized businesses could also access the same risk management tools—providing them with premium stability, coverage flexibility, and the ability to retain underwriting profits.

However, CIC said that the IRS continues to paint these arrangements as abusive without presenting supporting data, even after being ordered by the courts to follow the Administrative Procedure Act. CIC Services contends that the new rule is, like its predecessor, arbitrary, capricious, and contrary to law.

The company said that the new lawsuit seeks to vacate the Final Rule and permanently bar its enforcement against CIC Services, its clients, and its affiliated advisors. CIC also emphasised that this case is about more than one regulation—it’s about preserving the right of American businesses to challenge government overreach and operate within the bounds of laws enacted by Congress.

“The perception that the IRS isn’t accountable under the Administrative Procedure Act is no longer true,” said Sean King, general counsel for CIC Services. “We’ve shown once that they can be challenged—and we’re ready to do it again.”

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