Piedmont Water Company, based in northeast Georgia, has filed a lawsuit against the Internal Revenue Service (IRS) in US Tax Court over the disallowance of US$507,000 in tax deductions tied to its captive insurance arrangement.
The utility claims the IRS wrongfully denied deductions for premium payments made to Fortis Captive Insurance, alleging that Fortis met all requirements of a legitimate insurance entity.
The case aligns with a broader wave of litigation involving small and midsize companies pushing back against the IRS’s scrutiny of micro-captive insurance transactions.
Piedmont argues that Fortis was adequately capitalised, distributed risk among policyholders, and provided actual insurance services beyond tax benefits.
The IRS has increasingly challenged captive insurance structures, particularly micro-captives, which it claims are often used to generate improper tax deductions.
Piedmont’s case adds to more than a dozen similar suits currently before the Tax Court, as businesses seek judicial validation of their captive insurance models.
The company is asking the Court to reverse the IRS’s determination and recognise the deductions as legitimate under federal tax law.
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