Drake Plastics and SRA appeal ‘transactions of interest’ ruling in 831(b) case

Plaintiffs in the recent Drake Plastics micro-captive case have filed an appeal in the Fifth Circuit seeking to overturn the court’s decision to uphold the IRS’ ‘transactions of interest’ designation for certain 831(b) arrangements.

The initial lawsuit brought by Drake Plastics and SRA 831(b) Admin had argued that the IRS exceeded its statutory authority in how it designated certain 831(b)-electing micro-captive arrangements as ‘listed transactions’ or ‘transactions of interest’.

The judge in the case sided with the plaintiffs on in the IRS’ use of the ‘listed transaction’ designation, in a decision that was hailed by SRA itself as a “turning point” for the industry.

However, the ruling was only considered a partial victory for the plaintiffs, as the judge sided with the IRS in allowing it to continue using the ‘transaction of interest’ designation.

While ‘listed transaction’ is the more punitive of the two designations, there remained some uncertainty around what impact the decision would have, with the IRS still able to use its controversial criteria to issue similar reporting requirements on 831(b) arrangements it deemed ‘transactions of interest’.

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