CIC Services’ challenge of Internal Revenue Service (IRS) Notice 2016-66 has been denied by the US Sixth Circuit Court of Appeals.
The Court of Appeals’ judges affirmed the decision made in the district court in November 2017 to dismiss CIC Services complaint against IRS Notice 2016-66 and request for an injunction delay Notice 2016-66 for micro captives.
CIC had argued that Notice 2016-66 was unfairly labeling micro captives as tax avoidance schemes and was an illegal law because it violates the Administrative Procedures Act (APA).
Published in November 2016, Notice 2016-66 identified micro captives as having “a potential for tax avoidance or evasion” and imposed requirements and potential penalties on taxpayers engaging in them, and on material, advisors aiding in them.
In the decision, the Court of Appeals’ judges referenced the fact that the IRS had established a tradition of not complying with the APA but ultimately held that as Notice 2016-66 was involved in the collection of taxes an APA challenge to the notice were not in the federal courts’ remit.
There was, however, a dissent issued by one of the Court of Appeals’ judges, Judge Nalbandian.
Nalbandian suggested that the argument brought by the IRS that the Anti-Injunction Act blocks CIC’s suit was not valid.
Writing for Forbes, Jay Adkisson, partner at Riser Adkisson, said the notice had already served “99.9 percent of its intended effect”.
Adkisson suggested this effect was “to cause promoters such as CIC Services to disclose their client lists and other information to the IRS, and to cause their clients to come to the realisation that their spiffy captive deal might instead be an abusive tax shelter leading to not just the denial of deductions but also substantial penalties as well”.
He added: “With a reported over 600 risk-pooled 831(b) captive cases now docketed before the US Tax Court, there can be little doubt that Notice 2016-66 has served its purpose, and that well.”
