Oral arguments have been heard in CIC Services’ challenge of Internal Revenue Service (IRS) Notice 2016-66, at the US 6th Circuit Court of Appeals in Cincinnati, Ohio.
The notice means captive insurance companies are obligated to report certain transactions to the IRS.
CIC Services had previously accused the IRS of unfairly labeling captives as tax avoiders in Notice 2016-66 and requested for an injunction to delay it for micro captives.
On 2 November 2017, a memorandum opinion and order by a Federal Judge in Tennessee denied CIC Services injunctive relief and granted the IRS’s motion to dismiss.
The North Carolina Captive Insurance Association (NCCIA) filed an amicus brief in support of CIC Services in April 2017.
Lane Brown, NCCIA vice president for governmental affairs, assisted Adam Weber, counsel for CIC Services, in preparation for the case and was present for the oral arguments.
During the oral arguments, Weber stated: “Something very wrong has happened here. The IRS has attempted to create a new law, but it is an illegal law for two reasons.”
“One, they did not follow congresses express direction that they make new law under this particular statute, quote: ‘under regulation’.”
“It is also an illegal law because it clearly violates the Administrative Procedures Act.”
The two participating judges threw cold water on CIC Services’ arguments, leaning on a similar case from DC Circuit Court, Florida Bankers v US Treasury.
The NCCIA suggested that this was a potential preview that the Court’s decision would be “that the Anti-Injunction Act blocked the challenge”.
On 15 October, the Circuit Court ruled in favour of the IRS in a similar case involving a non-profit tax-exempt organisation that had unrelated business taxable income, which it sought to shelter with club operating profits.
The Association commented that this ruling, which was made by Judge Nalbandian–who is also ruling on this case, is a sign that was “a sign of the Circuit Court’s reluctance to block Treasury actions”.
According to the NCCIA, the ruling has three possible outcomes: “It could affirm the earlier Tennessee ruling; reverse the Tennessee ruling and remand for further consideration; or issue a split decision, ruling OK to enjoin IRS from requiring captives to file certain data for its non-compliance with the Administrative Procedures Act, but not restricting IRS from assessing penalties (taxes) for non-compliance with 2016-66.”
The association predicted that the decision will be an affirmation of the earlier Tennessee ruling.
Examining the 6th Circuit Court’s procedural histories, a decision could come as early as within the next 60 days.
