Avrahami Motion for Reconsideration: "No Such Luck"

On September 21, 2017, in a motion for reconsideration, the Avrahamis asked Judge Mark V. Holmes to reconsider his August 21, 2017, decision in Avrahami v. Comm'r and Feedback Ins. Co., Ltd. v. Comm'r, 149 T.C. 7 (2017). Responding to the motion, the judge issued an order on November 14, 2017, that denied the motion. 

In the motion, the Avrahamis raised two matters for reconsideration.

According to the order, the first item dealt with Feedback's (captive) "operation like an insurance company." The Avrahamis argued that "Feedback must have operated like an insurance company because it reasonably relied upon its advisors to operate it."

Judge Holmes asserted in the order that there is no case law that defines "insurance" based on reasonable reliance on professional advisers as a defense.

The question of whether an arrangement looks like insurance doesn't depend on whether those appearances flowed from professional advice but what actually happened. Here, some of the key facts were the extreme illiquidity of Feedback's investment portfolio—so skewed toward flowing funds back to the Avrahamis that it had no other significant investments—and the very telling pattern of receiving claims only after the [Internal Revenue Service] started an audit.

Per the order, the second argument raised for reconsideration by the Avrahamis had to do with the "characterization of [insurance] policies," as follows.

"[T]there should be no reasonable dispute [that] the policies at issue were claims made policies, not occurrence policies."

Judge Holmes succinctly points out that the original ruling found as follows.

Some [of the policies] were, but as we pointed out, at least one policy was so ill-drafted that it was both a claims-made and an occurrence policy.… That was an illustration of a couple more general points—sloppy drafting of policy language and actuarial calculations that did not reflect in all cases the actual policy language … buttressed the finding of fact that Feedback was not operating like an insurance company. [Emphasis in original.]

In a November 17, 2017, Forbes article titled "Avrahamis' Motion for Reconsideration Rolls Snake-Eyes in U.S. Tax Court," Jay Adkisson, partner at Riser Adkisson LLP, commented on the motion and subsequent order as follows.

This struck me as an odd Motion, since it sought to change findings that were somewhat collateral to the main issues, and were of a type that ... Judge Holmes would be inherently unlikely to edit.

Mr. Adkisson speculates that, as such, perhaps "this Motion was lodged not in inconsequential part to set up civil litigation by the Avrahamis against someone, presumably those who managed their captive (Feedback) and the involved insurance pool (Pan American)."