North Carolina Captive Insurance Association

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151 Crest Road
Southern Pines, NC 28387

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North Carolina Captive Insurance Association Announces Opening Plenary Session

SCOTUS Ruling For The CIC Services v. IRS

The Long awaited Supreme Court Decision in the CIC v Internal Revenue was handed down on Monday, May 17, 2021.

The behind the scenes developments in the CIC v IRS case will be the subject of the Opening Plenary Session at the “in person” NCCIA Annual Conference August 30 through September 1st at the Washington Duke Inn and Golf Club in Durham. Presenting in this session will be Sean King, President of CIC Insurance Services, Adam Weber with who was the lead attorney for CIC Services at the Federal District Court trial and both the Court of Appeals and the US Supreme Court level and Kevin Doherty with Dickinson Wright who prepared the amicus brief for the NCCIA at the trial level and the two subsequent amicus for the broader group of captive domiciles.

In addition to hearing how the legal proceedings developed you will learn how the ruling will affect micro captives and what the next steps will be in the continuing legal process now that SCOTUS has remanded the case back to the Court of Appeals. This Plenary Session is a dramatic kick off to the NCCIA annual conference of a major captive domicile in two years. North Carolina is the 4th largest domicile in the United States.

(Attorney Alex Webb (Webb & Morton), first Chairman of NCCIA and now chairs the Government Affairs Committee has provided The NCCIA Newsletter an analysis of the original district court ruling and where the case stands In light of the SCOTUS ruling.)

“The SCOTUS victory in CIC Services v. IRS is certainly worth celebrating, but let’s be real.  The net result is a remand to the District Court to reconsider the demand for an injunction of Notice 2016-66 due to violation of the federal Administrative Procedure Act because the IRS did not publish the Notice with the right of affected and/or interested parties to make “comments” (that the IRS must reasonably consider).

Judge McDonough of the Eastern District of Tennessee will now have to look at the CIC demand for an injunction anew.  Let’s look at the standard of review and analysis he will apply.  From his Memorandum Opinion and Order issued April 21, 2017 he states as follows: “When reviewing motions for preliminary injunctions, courts must consider the following:  (1) the movant’s likelihood of success on the merits; (2) whether the movant will suffer irreparable injury without an injunction; (3) whether granting the injunction would cause substantial harm to others; and (4) whether the public interest would be served by granting the injunction.”

It was as to #1 that the IRS successfully used the Anti-Injunction Act to defeat the Plaintiff’s demand for an injunction.  This is precisely the point that SCOTUS reversed in CIC’s favor.  McDonough gave #2 to CIC: “Plaintiffs have demonstrated that they are likely to suffer at least some irreparable harm in the absence of the requested injunction.”  As to #3, it was a toss-up:  “Ultimately, the Court finds that this factor does not weigh in favor of or against the preliminary injunction and is significantly less important than the other factors considered in ruling on Plaintiffs’ motion.”

Now we come to the “rub” that could still cause problems for CIC winning the injunction.  As to #4, the “public interest”, McDonough states: “Although Plaintiffs may take issue with the IRS’s interest in their industry, the public interest in identifying transactions potentially aimed at tax avoidance or evasion outweighs any incidental effects on entities forced to comply with the IRS’s reporting requirements. Accordingly, the Court finds that this factor weighs against issuance of Plaintiffs’ requested injunction.” This is the new battleground and the industry will need to rally to help CIC present the best arguments why the public interest is not harmed by and may actually be helped by granting the injunction!

The NCCIA has been at the forefront of this struggle with the Service since it was the only captive insurance association to file an amicus brief with the District Court.  Also, members of NCCIA were instrumental in raising funds to pay the attorneys to bring and prosecute this action initially.  Sean King was in that first round of funding and when someone had to step up and be the plaintiff and fund two more levels of appeal and he did that. Sean has done a great service to the industry through this entire effort and should be commended by us all.

NCCIA will be monitoring the developments on remand very closely and will endeavor to assist as appropriate and helpful.  We are close but more work is needed before the Notice is entirely defeated!!”

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