IRS micro-captive ‘transaction of interest’ rules upheld in Ryan LLC case

A federal judge has upheld the IRS’s disclosure requirements for certain micro-captive insurance transactions classified as ‘transactions of interest’, rejecting a challenge brought by global tax consulting firm Ryan LLC.

The opinion, published on Friday 26th June by the US District Court for the Northern District of Texas, follows an April 2026 ruling in Drake Plastics v IRS, which vacated the IRS’ designation of certain micro-captive arrangements as ‘listed transactions’.

In the ruling, the court noted that the Drake Plastics decision removed the need to consider Ryan LLC’s challenge to the ‘listed transaction’ designation, leaving only its challenge to the IRS’ ‘transactions of interest’ designation. Ryan LLC had originally brought three claims against the IRS’ January 2025 Final Rules regarding disclosure requirements for micro-captives, although the court dismissed the first two in November 2025.

Addressing Ryan’s remaining claim that the Final Rules were “arbitrary and capricious”, Judge Jane J. Boyle rejected the firm’s arguments over the criteria used in the Final Rules to identify micro-captive arrangements as ‘transactions of interest’.

Reviewing each of the three challenged criteria – the loss ratio, financing factor, and definition of a captive – in turn Judge Boyle found that “based on facts and data in the record, § 1.6011-11’s criteria are reasonable indicators of a potential for tax avoidance.”

April’s Drake Plastics decision was widely welcomed by the micro-captive industry as a significant win because it removed the more punitive ‘listed transaction’ reporting requirements.

However, commentators also acknowledged it was only a partial win. With the ‘transactions of interest’ designation left in place it means many micro-captive owners remain subject to disclosure obligations.

Drake Plastics and SRA 831(b) Admin have since appealed that aspect of the ruling, seeking to have the ‘transactions of interest’ designation vacated as well.

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