Benyamin and Orna Avrahami have launched a class-action lawsuit against the original owner of the captive at the centre of Avrahami v Commissioner of Internal Revenue case.
The Avrahamis issued the lawsuit at the US District Court for the District of Arizona alongside a number of different stakeholders.
The lawsuit comes at a time when the beleaguered risk-pooled 831(b) captive insurance sector, which is staggering from its latest loss to the IRS in the Syzygy case.
The lawsuit claims that the original owners of the captive, did not properly apply captive insurance strategies but instead, used a prepackaged collection of misrepresentations, omissions, and common form documents.
The lawsuit names a number of defendants, including Cecilia Clark, Clark & Gentry; Neil Hiller, Fennemore Craig; Alan Rosenbach; ACR Solutions; RMS Solutions; Heritor Management; Pan American Reinsurance Company; and Craig McEntee, McEntee & Associates.
The Avrahamis are arguing that the original owners caused them to incur back taxes, interest, and/or penalties for claiming business insurance expense deductions, while also avoiding income recognition under section 831(b) of the Tax Code.
In 2017, the US Tax Court ruled against the Avrahamis in its dispute with the Internal Revenue Service, finding that their captive, Feedback Insurance Company, was not an insurance product for federal tax purposes.
The Avrahamis are seeking damages, including actual, consequential, and incidental damages; rescission and disgorgement; and punitive and treble damages in an amount to be determined at trial.
Writing for Forbes, Jay Adkisson, partner at Riser Adkisson, commented: “As I've predicted for years, this is the fate that likely awaits all the risk-pooled 831(b) captive promoters to whom the IRS has latched: the imposition by the IRS of large promoter penalties, years in litigation defending against class-actions, and then very likely bankruptcy for all but the deepest-pocketed or (ironically) best-insured defendants.”
