On March 21, 2022, the US District Court for the Eastern District of Tennessee ruled in favor of CIC Services, LLC (“CIC”) in their case against the IRS regarding Notice 2016-66 (the “Notice”). In CIC Services, LLC v. IRS (“CIC Services”), the ruling stated that IRS did not comply with the mandatory notice-and-comment requirements under the Administrative Procedures Act (“APA”) and the IRS’ issuance of the Notice was arbitrary and capricious as set forth under the APA.
On April 9, 2021, the IRS issued IR-2021-82, which urged participants in abusive micro-captive insurance arrangements to exit these transactions as soon as possible. At the time of the release, the IRS noted it has increased examinations of micro-captive arrangements and that it recently won another US Tax Court Case with the March 10, 2021 ruling in Caylor Land & Development, Inc. v. Commissioner, T.C. Memo 2021-30 (“Caylor”).
While the COVID-19 pandemic prompted delays in some captive insurance tax case proceedings and IRS audit activity, there were many other captive insurance developments that occurred in 2020. Captive.com recently published an article that takes a closer look at the current captive insurance landscape.
Countless businesses across the country have been forced to close their doors as COVID-19 continues to spread. As business owners seek to recover losses suffered due to shelter-in-place orders, many business interruption insurance claims are being denied under the assumption that closed businesses have not experienced a “direct physical loss of, or damage to, property.” In turn, business owners are taking insurers to court.
The U.S. Small Business Administration (SBA) is offering long-term, low-interest federal disaster loans for working capital for small businesses and private, non-profit organizations affected by the coronavirus (COVID-19) throughout the United States and associated territories.
It is critical for clients and practitioners to appreciate the Internal Revenue Service’s (“IRS”) historic positions and analysis regarding captive insurance companies, in order to fully understand the current captive insurance tax environment. The following discussion focuses on the relevant authorities contained in the Internal Revenue Code and Regulations, the current views of the IRS as set forth in administrative rulings and pronouncements and decisions dealing with what transactions qualified as insurance, and whether the activities of a related captive insurance company are those of a company primarily and predominately engaged in the insurance business.
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