A Delaware magistrate judge has recommended that the Internal Revenue Service’s (IRS) summons against the Delaware Department of Insurance (DDOI) should be granted. US Magistrate Judge Christopher Burke for the US District Court for the District of Delaware also recommended that the department’s motion to nullify the summons should be denied. Pending in the case, United States of America v. Delaware Department of Insurance, is a petition to enforce an IRS summons served on DDOI as part of the agency’s investigation into transactions related to micro captives. The IRS began its initial investigation into the role of Artex Risk Solutions, Tribeca Strategic Advisors and others in transactions involving micro captive insurance plans, and whether this violated federal law. During this investigation, in 2013 the IRS issued administrative summonses against Artex which revealed email correspondence between Artex and DDOI, as the department had issued insurance certificates of authority to these micro captive companies. In October 2017, the IRS then issued summons to DDOI seeking information relating to around 200 insurance certificates issued to micro captives. In response, DDOI issued objections to the summons, citing Section 6920 of the Delaware Insurance Code which stipulates that a special purpose financial captive insurance company can be reasonably designated confidential in terms of examination reports, working papers and other recorded information and documents. Although this means the information is not subjected to subpoena or made public by Commissioners, it can still be shared with other insurance departments and US law enforcement agencies. DDOI engaged in voluntary compliance by producing documents responsive to the subpoena, but not those that are client-specific. The department contacted all micro captives associated with Artex to request voluntary consent to the release of documents to the IRS, of which only 19 consented. Furthermore, DDOI objected to the summons by arguing that the IRS already holds the relevant documents from the summons against Artex. However, Burke argued that the information sought is the version of the email correspondence in DDOI’s possession, which “could be of independent evidentiary value to the IRS”. He concluded the court by recommending that DDOI’s motion be denied and the government’s petition be granted. Last week Delaware governor John Carney signed Senate Substitute 1 for Senate Bill 36 to allow captive structures to be classified as registered series, and improved dormancy laws.
