North Carolina Captive Insurance Association

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151 Crest Road
Southern Pines, NC 28387

NCCIA Chairman, Lea Riddle Makes Announcement Regarding CICA Amicus Brief Filing.

PRESS RELEASE

(Southern Pines)…..Lea Riddle (McGriff Insurance), Chairman of the NC Captive Insurance Association announced to the association’s membership that NCCIA and 23 leading national, state and territorial captive domicile associations, including: Alabama, Arizona, the Captive Insurance Company Association (CICA), Connecticut, Delaware, the District of Columbia, Georgia, Hawaii, Kentucky, Missouri, Montana, Nevada, New Jersey, Oklahoma, Puerto Rico, the Self-Insurance Institute of America, Inc. (SIIA), South Carolina, Tennessee, Texas, Utah, the U.S. Virgin Islands and Vermont have formally filed an amicus brief before the US Supreme Court. Filed in support of the case of CIC Services, LLC v. IRS (‘CIC’) the coalition has spent the past two months working on the brief. CIC is a member of NCCIA, based in Knoxville, TN is a captive manager, helping small-and medium-sized business in the captive space.

This diverse coalition formed in support of the CIC Services case with the goal of demonstrating through an amicus brief to the U.S. Supreme Court the broader concerns of the larger captive insurance industry with recent actions by the Internal Revenue Service (‘IRS’). While the industry continues to support appropriate IRS actions to curb abusive practices, it objects to the unnecessary regulatory burdens being imposed on taxpayers without a formal rulemaking or appeal process, contrary to law and Congressional intent. 

At the center of the case is the argument that the IRS overreached in its authority in issuing Notice 2016-66 (‘the Notice’), namely that taxpayers such as CIC could face criminal penalties if forced to violate the law in order to obtain judicial review of the regulatory mandate. The Notice imposes requirements and potential penalties on owners, advisors and managers who participate in certain captive transactions, going back up to 10 years.  These taxpayers are being forced to comply with the Notice regardless of whether their captive insurance arrangement contained any of the characteristics of concern identified by the IRS, and were offered no meaningful opportunity to provide comment or feedback prior to the Notice’s immediate implementation in 2016, nor the ability to appeal the filing requirements until paying a penalty. The time, effort and cost to collect, prepare and file all the forms required by the Notice is estimated to average 62 hours per form at a cost of nearly $10,000 per filing, well above the 10.16 hours for recordkeeping and 6.25 hours for preparation estimated by the IRS.

The coalition amicus brief focuses on three key arguments at issue in the CIC case. First, that the Court should consider the heavy regulatory burden and harm being caused to taxpayers, namely the captive insurance industry. The Notice requires taxpayers to report duplicative information and imposes an undue financial burden to small- and medium- sized businesses, all for little to no benefit to the IRS. These requirements have come at a tremendous cost to taxpayers.

Second, the Administrative Procedures Act (“APA”) requires federal agencies to allow for a meaningful opportunity for public comment on proposed rules. The industry brief argues that the IRS did not comply with the APA, rather issuing the Notice without offering public comment and review. Despite the lack of a formal comment and review process, coalition members nonetheless provided comments to the IRS that went unheeded. 

Third, the coalition argues that the Anti-Injunction Act (“AIA”) prohibition on preventing challenges to the IRS should not extend to reporting requirement, such as are imposed by the Notice.

In introducing the amicus to the NCCIA membership Riddle said, “The action of this coalition in filing the amicus sends a strong signal to our members that the industry is united in its approach to protecting the interest of our members and the public. Industry is increasing reliant on captive insurance companies as a risk management tool for American business owners, as well as the unnecessary and overburdensome regulatory actions that stifle that growth and opportunity.”

The Supreme Court will hear the case during it’s upcoming session beginning in October. Chairman Riddle concluded “while the CIC case is specific to captive insurance companies electing under IRC 831(b), the unnecessary and over broad regulatory actions of the IRS are of concern to both the broader captive insurance industry, and U.S. business in general.” 

At press time there have been a total of 10 amicus briefs submitted in the case. In the August Newsletter we will look at some of the major arguments presented in those briefs.

A link to the full coalition brief can be found at: 

Contact Tom Adams
(910) 684-8379