CIC Services Appeals IRS Micro-Captive Rule to Sixth Circuit

CIC Services has appealed a federal district court decision upholding the Internal Revenue Service's (IRS's) final regulations governing certain micro-captive insurance arrangements, bringing the dispute before the US Court of Appeals for the Sixth Circuit.

In its appellant brief filed June 11, CIC Services argues that the IRS exceeded its authority when it designated certain Section 831(b) captive insurance arrangements as listed transactions and transactions of interest under the agency's 2025 final rule.

The appeal follows a March 2026 decision by the US District Court for the Eastern District of Tennessee, which granted summary judgment in favor of the IRS and upheld the final rule.

In its filing, CIC Services points to differing outcomes in other federal courts. The brief notes that the Southern District of Texas vacated the rule's listed transaction designation while allowing the transaction of interest designation to remain in place, and that the Northern District of Texas allowed challenges to both designations to proceed. According to CIC Services, those decisions conflict with the Tennessee court's ruling and support further review by the Sixth Circuit.

According to the filing, the case centers on the IRS's final regulations addressing certain micro-captive insurance arrangements that elect tax treatment under Internal Revenue Code Section 831(b). The regulations designate specified arrangements as either listed transactions or transactions of interest, triggering reporting requirements and potential penalties for taxpayers and material advisers.

CIC Services argues that the IRS unlawfully designated legitimate captive insurance arrangements as listed transactions. The brief states that listed transactions may only be identified as tax avoidance transactions and contends that the IRS did not determine that the arrangements covered by the rule constitute sham insurance arrangements.

The filing further argues that the IRS improperly designated certain captive arrangements as transactions of interest without adequately explaining why the agency requires additional information about those arrangements. CIC Services states that the IRS has already received substantial disclosures related to micro-captive transactions through prior reporting requirements.

The brief also challenges the rule's treatment of ownership structures permitted under the Protecting Americans from Tax Hikes Act. According to CIC Services, Congress established diversification requirements for Section 831(b) captives, and the final rule improperly treats ownership structures that satisfy those statutory requirements as indicators of tax avoidance.

In addition, CIC Services argues that the IRS failed to adequately support the rule through taxpayer examination data and case law. The filing contends that the agency relied on examinations and judicial decisions without providing sufficient information to justify the specific standards adopted in the regulations.

CIC Services is asking the Sixth Circuit to reverse the district court's ruling and remand the case with instructions to grant summary judgment in its favor and set aside the final rule.

The case is CIC Services, LLC v. Internal Revenue Service, et al., before the US Court of Appeals for the Sixth Circuit.