IRS-Tennessee case may not set a precedent
The Internal Revenue Service (IRS) will not challenge the decision by a Tennessee federal court setting aside an agency notice requiring the disclosure of microcaptive insurance arrangements, according to an order from the Sixth Circuit.
CIC Services has also agreed to drop its appeal of the court’s decision that said it did not comply with the Administrative Procedure Act in issuing Notice 2016-66. This means the IRS does not have to return documents which taxpayers had sent to the IRS in response to Notice 2016-66, other than CIC Services itself which will get its documents back.
However, David Slenn, partner at law firm Akerman, told Captive International that the case may not set a precedent for how the IRS might respond should similar issues arise elsewhere.
“I think the IRS decided it might not be worth the effort given that particular Circuit previously ruled the IRS did not comply with the APA in another reportable transaction case,” he said.
“However, the IRS can certainly attempt to fight in other Circuits. The Treasury Department and IRS might also decide enough information has been gathered to ‘de-TOI’ 2016-66 (as opposed to ‘delisting’ a listed transaction) and perhaps (among other options) amend the regulations to create a new category for micro-captives as a reportable transaction and/or require certain information be included with a tax return.
“After issuing Notice 2008-99, which characterized as a transactions of interest certain transactions involving charitable remainder trusts, the IRS de-TOI’d the CRT transaction in 2015 and amended the regulations to provide special rules for the CRT transaction.
“By taking similar action with Notice 2016-66, the IRS will presumably engage in the required notice and comment rulemaking procedure for the proposed amendment. Regardless of how the IRS responds to the procedural issues associated with Notice 2016-66, it will continue to aggressively pursue certain micro-captive programs on substantive grounds, as none of the APA issues had anything to do with the merits of the transaction.”