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Supreme Court Agrees To Hear CIC Services Micro-Captive Case

US Supreme Court Building and Flag
May 06, 2020

The US Supreme Court has agreed to hear the CIC Services, LLC, challenge of the Internal Revenue Service (IRS) position that micro-captives are "transactions of interest" that should be reported to the IRS.

In 2019, a federal appeals court upheld a lower court ruling supporting the position of the IRS in CIC Servs., LLC v. Internal Revenue Service, et al. The Supreme Court will hear the case in the session beginning this October.

At issue are captive insurance companies electing to be taxed under § 831(b) of the Internal Revenue Code, which allows small insurance companies to pay federal income tax only on their investment income. IRS Notice 2016–66 states that certain transactions of such micro-captives made them transactions of interest, requiring them to report information. The IRS has aggressively investigated micro-captives in recent years, suggesting they could be used for purposes of tax evasion.

Knoxville, Tennessee-based captive manager CIC Services argued that the IRS notice violated federal law and would require congressional review.

In a statement, Lea Riddle, chairman of the North Carolina Captive Insurance Association (NCCIA), said the high court's decision to hear the case "represents a major victory for CIC Services in its continuing challenge to the IRS and its promulgation of Notice 2016–66."

The NCCIA had supported CIC Services in its initial challenge of the IRS notice in federal district court in Tennessee, as well as during its appeal, and, with other state captive associations, in its effort to bring its case before the US Supreme Court.

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