Captive Insurance

The Implications & Importance of CIC Services v. The Internal Revenue Service Recently, the Supreme Court overruled a lower court ruling affirming the use of the Anti-Injunction Act – ruling that tax experts believe will open a path to more tax challenges in the future, which could be a boon for taxpayers. With the help of a Tempe tax lawyer, more taxpayers might be able to challenge rules assessing unreasonable penalties. The case involved a rule passed by the IRS regarding penalties to be assessed to taxpayers or those who advise the taxpayers. The rule required taxpayers and their advisers to disclose any information regarding transactions that are considered abusive. The fines would be $50,000, plus a $10,000 daily fine. The IRS issued Notice 2016-66 stating that this rule would be applied to micro-captive insurance schemes, thereby requiring taxpayers and advisers to report any information regarding these abusive structures. In the case of CIC Services v. the Internal Revenue Service, the company CIC services challenged this rule ahead of being assessed any penalties. The company asserted that the new rule would violate the Administrative Procedures Act. Two lower courts dismissed the challenge, stating that the rule fell under the purview of the Anti-Injunction Act, which was designed to keep people from suing the government with the purposes of limiting or retraining the collection of taxes. However, CIC Services argued that the rule assessed penalties, so the suit did not challenge a tax. Ultimately, the Supreme Court agreed, and it overturned the rulings of the lower courts. Justice Elena Kagan said that a “reporting requirement is not a tax; and a suit brought to set aside such a rule is not one to enjoin a tax’s assessment or collection. That is so even if the reporting rule will help the IRS bring in future tax revenue – here, by identifying sham insurance transactions.” Lawyers for the IRS argued that such a ruling would leave the option open for taxpayers to bring other suits challenging tax assessments. However, the court ruled that the suit was about a regulation, not an actual tax. If any future suits are to be successful, they will also have to challenge a regulatory rule. What the case shows taxpayers is that the IRS does not always get the final word. When you have the Lance Wallach on your side, you may be able to successfully challenge a regulation – or you might have other options for challenging a ruling against you. Contact Lance Wallach at 516-236-8440 or Wallachinc@gmail.com