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Court Denies CIC Effort to Enjoin May 1, 2017 Deadline for 831(b) Micro-Captives

04 / 21 / 2017

CIC Services, LLC v. IRS, Case No. 3:17-cv-110 (ED Tenn. 4-21-17)

With May 1, 2017 just around the corner, the Federal Court in the Eastern District of Tennessee has denied the efforts of CIC Services, LLC and Ryan, LLC to obtain a preliminary injunction against the IRS, and thereby prevent reporting of 831(b) micro-captives as a "transaction of interest."  

The Court noted that under 26 USC Sections 6707A and 6111, Congress gave the IRS authority to designate certain transactions as "reportable transactions" as a way to identify transactions that have the potential for tax avoidance or evasion.  While those in the micro-captive insurance industry are concerned and may take issue with the same, the Court found that there is a public interest in identifying transactions potentially aimed at tax avoidance or evasion, and that this public interest outweighs any "incidental effects" on entities forced to comply with these reporting requirements.

The Court did recognize that these plaintiffs are likely to suffer at least some irreparable harm in the absence of the granting of the injunction, incurring substantial economic costs to achieve complaince, but they did not meet their burden of showing that the injunction sought is warranted.  One of the primary concerns for the Court is that the penalties asserted under Chapter 68 for non-compliance are treated for purposes of the Anti-Injunction Act as taxes (insofar as judicial review is only possible after assessment of the same).  The Court held that the requested injunction is likely barred by the Anti-Injunction Act.

The Court did indicate that it as denying the Plaintiff's motion for summary judgment, but doing so, without prejudice, to give the Government a chance to weigh in.