IRS petitions court to enforce a summons against Delaware DOI for captive docs

The Internal Revenue Service (IRS) has petitioned the US District Court for the District of Delaware against the Delaware Department of Insurance (DOI) to enforce a summons for documents related to its micro captive investigation.

In the filing, the IRS said it was looking for documents related to its micro captive investigation of Artex Risk Solutions or Tribeca Strategic Advisors from the Delaware DOI.

Christina Haas, senior policy advisor at Delaware DOI, explained that the state has provided non-confidential information to the IRS, and has worked with the industry to provide a collection of confidential documents with the consent of those companies.

Haas said the only exceptions were “those cases where consent was given by the company, we must act within the confidentiality confines of Title 18, Chapter 69 of the Delaware Code”.

She added: “Our office has cooperated with their requests to the extent that our statute allows.”

“The department continues to feel strongly that the confidentiality provisions of our state law are critical to both the state-regulated industry, and to public policy as a whole,” Haas noted.

Commenting on the case, Ben Whitehouse, senior counsel at Butler Snow stated: “Confidentiality of captive regulator papers in the face of a subpoena from a federal agency has not been tested by the courts before.”

He noted that state captive insurance laws typically give extraordinarily broad confidentiality protections to documents filed with captive regulators and the regulator’s own work papers.

He explained: “When the appropriate government agency or private litigant has grounds to subpoena these records, it is usually easier to obtain the documents from the captive insurance company itself, or the captive manager, or the parent company.”

Whitehouse highlighted that “a breach of these confidentiality protections could have troubling repercussions for our industry”.

In August last year, Artex Risk Solutions and other captive insurance providers, including Arthur J. Gallagher & Co, TSA Holdings and Tribeca Strategic Advisors, secured a victory in a class action lawsuit at the US District Court for the District of Arizona—Phoenix Division.

The companies were accused of devising a conspiracy to promote and sell tax-advantaged captive strategies that were viewed as illegal, according to the IRS, which disallowed the offered tax benefits.