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Government Responds to Letter in Captive Insurance Appeal

OCT. 1, 2021

Reserve Mechanical Corp. v. Commissioner

DATED OCT. 1, 2021
DOCUMENT ATTRIBUTES
  • Case Name
    Reserve Mechanical Corp. v. Commissioner
  • Court
    United States Court of Appeals for the Tenth Circuit
  • Docket
    No. 18-9011
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2021-37912
  • Tax Analysts Electronic Citation
    2021 TNTF 190-38
    2021 TNTG 190-39

Reserve Mechanical Corp. v. Commissioner

October 1, 2021

Christopher M. Wolpert, Esquire
United States Court of Appeals for the Tenth Circuit
Office of the Clerk
Byron White Court House
1823 Stout Street
Denver, CO 80257

Re: Reserve Mechanical Corp. v. Commissioner (10th Cir. — No. 18-9011)

Dear Mr. Wolpert:

Under Rule 28(j), the Government responds to the taxpayer's letter dated September 27, 2021, regarding the Supreme Court's recent decision in CIC Servs., LLC v. Internal Revenue Serv., 141 S. Ct. 1582 (2021).

In CIC, the Supreme Court held that the Anti-Injunction Act did not bar the plaintiff's pre-enforcement procedural challenge to Notice 2016-66, which identified certain “micro-captive” insurance arrangements as transactions-of-interest subject to a reporting requirement. 141 S. Ct. at 1588-92. On remand, the district court preliminarily enjoined the Government from enforcing Notice 2016-66 against the plaintiff, concluding that the plaintiff was likely to prevail on the merits of its claim that the notice should have been issued using notice-and-comment rulemaking procedures. (Slip Op. 6-10.)

Contrary to taxpayer's suggestion (Letter 2), neither the Supreme Court nor the district court “expressed concern” that the IRS was overzealously challenging captive insurance arrangements. Indeed, after noting that Congress has chosen to provide special tax treatment for premiums paid to “small” (not “captive”) insurance companies, the Supreme Court recognized that, of course, “no tax benefit should accrue if the money is not really for insurance.” 141 S. Ct. at 1587. That is the issue before this Court: whether a particular arrangement constitutes insurance for tax purposes. As we explained on pp. 22-63 of our opening brief, the taxpayer's arrangement does not.

Moreover, the Government did not, as taxpayer claims (Letter 3), “simply cit[e] to” Notice 2016-66 as support for its argument on brief that captive insurance arrangements have a significant potential for abuse. To the contrary, the Government cited numerous cases bearing this out, including Beech Aircraft Corp. v. United States, 797 F.2d 920, 922-23 (10th Cir. 1986), and Stearns-Roger Corp. v. United States, 774 F.2d 414, 415 (10th Cir. 1985). (Gov't Br. 19, 23, 25-26.) Even CIC's principal and founder acknowledged that captive insurance arrangements “can 'most definitely' be used for tax avoidance or evasion purposes.” (Slip Op. 4.) See CIC Servs., LLC v. Internal Revenue Serv., 2017 WL 6016526, at *2 (E.D. Tenn. Apr. 21, 2017) (Gov't Br. 4).

Kindly distribute this letter to the panel assigned to this case.

Sincerely yours,

GEOFFREY J. KLIMAS
Attorney, Appellate Section

cc:
Counsel for appellant (via CM/ECF)

DOCUMENT ATTRIBUTES
  • Case Name
    Reserve Mechanical Corp. v. Commissioner
  • Court
    United States Court of Appeals for the Tenth Circuit
  • Docket
    No. 18-9011
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2021-37912
  • Tax Analysts Electronic Citation
    2021 TNTF 190-38
    2021 TNTG 190-39
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