The U.S. Supreme Court this week heard oral arguments in a micro captive insurer case that could affect how the Internal Revenue Service establishes rules that are not officially classified as regulations.
CIC Services LLC, the plaintiff, is a Knoxville, Tennessee-based company that helps business owners set up and run micro captives, or small insurance companies that serve only the captive owners.
IRS officials have argued for years that many micro captives help the owners lower taxes in abusive ways.
In 2016 the agency issued a batch of guidance that established tough new reporting rules for micro captives, or IRS Notice 2016-66. The notice requires micro captive owners and their advisors to report all micro captive transactions to the IRS.
- Resources related to the CIC Services v. IRS case are available here.
- An article about a U.S. Government Accountability Office report that refers to the CIC Services case is available here.
CIC sued, arguing that the IRS approach was arbitrary and capricious because the tax agency failed to put the new rules through a public notice and comment process.
The IRS has argued that CIC cannot bring its suit, because of the federal Anti-Injunction Act, which prohibits taxpayers from suing to block taxes. The IRS says the act also blocks taxpayers from suing over “unlawful regulatory mandates issued by administrative agencies that are not taxes.”
Supporters of the IRS position say that rejecting its ability to impose new reporting requirements through notices, without going through notice-and-comment periods, would gut the agency’s ability to respond quickly to scams and abusive tax shelters.
Justice Neil Gorsuch asked questions about the lack of a public comment period.