The Internal Revenue Service (IRS) has filed a petition with the US District Court for the Middle District of Florida, Tampa Division to enforce summonses to investigate tax liability in a captive insurance transaction.
The petition, United States v. Travis Prince, was served to Prince in his capacity as an individual shareholder of Prince PA, and as partnership representative for PrincEquity.
The IRS issued administrative summonses to Prince as part of the agency’s examination of the two entities’ involvement in a captive insurance transaction.
Between the tax years 2014 and 2020, Prince PA and PrincEquity were involved with the captive insurance company Series Protected Cell 107, a series of Oxford Insurance Co, with PrincEquity owning 100 per cent of Cell 107’s shares.
In turn, Travis Prince owned 95 per cent of PrincEquity.
Under the captive arrangement, Cell 107 allegedly offered an actual net loss insurance policy to insure both Prince PA and PrincEquity against a range of risks, including defence cost reimbursement, directors’ and officers’, and reputational risk.
The IRS contends that in tax years 2019 and 2020, both entities took insurance premium deductions for the full amount of premium payments paid to Cell 107 under the captive insurance agreement, therefore reducing their reported taxable income.
The petition says: “Although captive insurance arrangements are recognised under federal tax law, the IRS has designated certain arrangements as potentially abusive because these transactions have the potential for tax avoidance and evasion.”
The IRS concludes the petition by arguing that the summonses were issued for legitimate purposes to determine the accuracy of tax returns, and tax liabilities.
