The US District Court of Eastern District of Tennessee has dealt a blow to micro captives and their managers in the run-up to the 1 May deadline to comply with Notice 2016-66.
The district court denied CIC Services and Ryan’s request for an injunction to block or delay Notice 2016-66 for micro captives on 21 April.
According to the district court, the lawsuit is barred by the Anti-Injunction Act, which precludes actions against the government seeking to bar the assessment and collection of taxes.
CIC and Ryan filed the lawsuit against the Internal Revenue Service (IRS) and US Treasury in a bid to block Notice 2016-66, whose deadline was originally set for 30 January but was pushed back until May after a fierce backlash.
They argued that Notice 2016-66, which formally identifies micro captives as “transactions of interest” and requires extensive reporting back to the IRS, was “unlawfully issued” because it didn’t comply with the mandatory notice-and-comment provisions of the Administrative Procedure Act.
Notice 2016-66 is also “arbitrary and capricious and ultra vires in nature”, lacking the Administrative Procedure Act’s requirement for underlying authority and a reasoned analysis footing, they argued.
Despite the denial, the district court did give CIC and Ryan leave to refile, and the decision can be appealed against before the Court of Appeals for the Sixth Circuit.
