Capstone Associated has published its fourth commentary in response to the opinion of the US Tax Court in the Reserve Mechanical Corporation v Commissioner of Internal Revenue case.
The commentary addresses the court’s use of the Avrahami v Commissioner case as the authority for many of its findings in its opinion on the Reserve case. Capstone described this use as a “misapplication”.
The fourth commentary noted: “Despite the significantly different facts and jurisdictional posture of Reserve relative to Avrahami, the Court erred in remaking the facts of Reserve to fit into the legal findings of Avrahami, while demonstrating a lack of understanding of how insurance works in the business community.”
“In doing so, the Court cast aside long-standing statutory provisions designed to encourage the formation of captive insurers by small and mid-size businesses.”
Capstone concluded that the factual dissimilarities between the two cases, which are covered in detail in the commentary, mean that the Court’s analysis in the Reserve case and its attempt to strictly follow the Avrahami case “cannot be explained”.
Capstone’s commentary labels the Reserve case as “a dangerous precedent for the insurance industry” that “may indicate that the Tax Court has made a policy decision distinct from Congress”.
The 60-page commentary can be found in full on the Capstone website.
The previous three commentaries can be found here.
