Ankner v. United States

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF FLORIDA

FORT MYERS DIVISION

RAYMOND ANKNER, CJA AND

ASSOCIATES, INC., RMC

PROPERTY & CASUALTY, LTD.,

and RMC CONSULTANTS, LTD.,

Plaintiffs,

v. Case No: 2:21-cv-330-JES-NPM

UNITED STATES OF AMERICA,

Defendant.

CJA AND ASSOCIATES, INC.,

Plaintiff,

v. Case No: 2:21-cv-331-JES-NPM

UNITED STATES OF AMERICA,

Defendant.

RMC PROPERTY & CASUALTY,

LTD.,

Plaintiff,

v. Case No: 2:21-cv-333-JES-NPM

UNITED STATES OF AMERICA,

Defendant.

RMC CONSULTANTS, LTD.,

Plaintiff,

v. Case No: 2:21-cv-334-JES-NPM

UNITED STATES OF AMERICA,

Defendant.

OPINION AND ORDER

This matter comes before the Court on Plaintiffs’ Motion on

Entitlement to Reasonable Litigation Fees/Costs (Doc. #159),

timely filed on April 23, 2024. The United States filed an

Opposition to RMC Group’s Motion for Attorney Fees and Costs (Doc.

#162) on May 8, 2024. For the reasons set forth below, the Court

finds plaintiffs are not entitled to litigation fees and costs

under 26 U.S.C. § 7430(a), and therefore the motion is denied.

I.

In the Amended Complaint (Doc. #30), plaintiffs Raymond

Ankner (Ankner), CJA and Associates, Inc. (CJA), RMC Property &

Casualty Ltd. (RMC P&C), and RMC Consultants, Ltd. (RMC

Consultants) sought a judgment against the United States of America

(the United States) finding that prior impositions of penalties

pursuant to 26 U.S.C. § 6700 were erroneous and that the portions

of those penalties paid by them as a pre-condition to filing their

lawsuits must be refunded. The United States had imposed

penalties against plaintiffs for promoting the tax benefits of

their captive program as “insurance” when, in the United States’

view, the program did not qualify as insurance for tax purposes.

The United States filed a Counterclaim (Doc. #34) seeking

payment of the unpaid portions of the assessed penalties.

The case proceeded to trial before a jury. The jury returned

a nine-page verdict (Doc. #151) finding that the United States did

not prove its § 6700 claims against any plaintiff for any of the

relevant tax years. The jury determined that plaintiffs were not

liable for any penalties and that the United States must refund

all penalties paid by plaintiffs plus statutory interest. (Id.)

Judgment and an Amended Judgement were entered against the United

States. (Docs. #154, #156.) No appeal was filed.

II.

Pursuant to 26 U.S.C. § 7430(a), all plaintiffs except Ankner1

(collectively the RMC Group) seek to recover reasonable litigation

costs, including attorney fees and costs, as prevailing parties in

the court proceeding. In general, § 7430(a) allows a prevailing

private party to obtain a judgment for the “reasonable litigation

costs”2 of a court proceeding brought by or against the United

1 See Doc. #159, n.1.

2 “Reasonable litigation costs” includes court costs,

reasonable expenses for expert witness, the reasonable cost of any

“study, analysis, engineering report, test, or project which is

found by the court to be necessary for the preparation of the

party's case”, and reasonable attorney fees not to exceed $125 an

hour adjusted each year for cost of living adjustments, “unless

the court determines that a special factor, such as the limited

availability of qualified attorneys for such proceeding, the

difficulty of the issues presented in the case, or the local

availability of tax expertise, justifies a higher rate.” 26

States concerning federal taxes. 26 U.S.C. § 7430(a)(2). This

provision waives sovereign immunity for such litigation costs and

attorney fees incurred. Jove Eng'g, Inc. v. I.R.S., 92 F.3d 1539,

1560 (11th Cir. 1996). “Congress enacted § 7430 to deter abusive

actions or overreaching by the IRS and to enable taxpayers to

vindicate their rights regardless of their economic

circumstances.” Cooper v. United States, 60 F.3d 1529, 1530 (11th

Cir. 1995) (citation omitted).

Certain restrictions limit the ability of a taxpayer to

recover reasonable litigation costs under this statute. The Court

discusses the relevant requirements below.

A. Net Worth Requirements

“Prevailing party” status requires the taxpayer to satisfy

the net worth eligibility requirements imposed by 28 U.S.C. §

2412(d)(2)(B). See 26 U.S.C. § 7430(c)(4)(ii). Section 7430

“supplanted the Equal Access to Justice Act for the award of

attorney's fees and costs in proceedings to which § 7430 is

applicable.” In re Brickell Inv. Corp., 922 F.2d 696, 700 (11th

Cir. 1991). See 28 U.S.C. § 2412(e) (“The provisions of this

section shall not apply to any costs, fees, and other expenses in

connection with any proceeding to which section 7430 of the

Internal Revenue Code of 1986 applies.”).

U.S.C. § 7430(c)(1).

A “party” is limited to those with a net worth which does not

exceed certain amounts:

(i) an individual whose net worth did not

exceed $2,000,000 at the time the civil action

was filed, or (ii) any owner of an

unincorporated business, or any partnership,

corporation, association, unit of local

government, or organization, the net worth of

which did not exceed $7,000,000 at the time

the civil action was filed, and which had not

more than 500 employees at the time the civil

action was filed….

28 U.S.C. § 2412(d)(2)(B). Net worth is determined by subtracting

total liabilities from total assets. City of Brunswick, Ga. v.

United States, 849 F.2d 501, 503 (11th Cir. 1988).

The United States argues that the RMC Group has failed to

adequately establish net worth because its supporting affidavit

(1) does not contain specific and detailed financial information,

and (2) covers the wrong time period. According to the United

States, courts typically require detailed financial data showing

the net worth requirement is satisfied. Additionally, the United

States asserts that the RMC Group has provided no evidence of

actual net worth at the time the suit was filed, only estimates of

current net worth. (Doc. #162 at pp. 25-27.) Despite its multi-

year audit, the United States does not suggest that the net worth

of the RMC Group entities exceeded the net worth threshold.

Rather, the United States only asserts that the RMC Group has not

sufficiently shown their net worths did not do so.

Plaintiffs assert through counsel that “[a]t the time of

filing in April 2021, RMC P&C’s approximate net worth was

approximately $432,458.00. RMC Consultants’ net worth was

approximately ($4,366,966.00) and CJA’s net worth was

approximately (3,124,303.00). At no time did any of the Plaintiffs

have more than 500 employees.” (Doc. #159 at 2.) Counsel’s

signature certifies that “the factual contentions have evidentiary

support or, if specifically so identified, will likely have

evidentiary support after a reasonable opportunity for further

investigation or discovery” under Fed. R. Civ. P. 11(b)(3).

Counsel’s allegations are also supported by the affidavit of the

General Counsel of the RMC Group. (Doc. #159-1, ¶¶ 5-6.) The

General Counsel swears that “[a]t the time of filing this action,

none of the Plaintiffs had a net worth exceeding $7,000,000.00 and

all business entities had less than 500 employees.” (Id. at ¶ 5.)

The affidavit then sets forth estimates of the current net worth

of each entity, none of which are close to the $7 million

threshold. (Id. at ¶ 6.)

The Court is satisfied from this that the RMC Group has

reliably shown that the entities did not exceed the net worth

limitation at the relevant time period. The United States’

argument to the contrary is rejected.

B. Exhaustion of Administrative Remedies

A putative prevailing party must exhaust the administrative

remedies available within the Internal Revenue Service (IRS). 26

U.S.C. § 7430(b)(1). Plaintiffs assert that they did so in this

case, voluntarily participating in a “years-long investigative

audit by the IRS,” protesting the resulting imposition of

penalties, and paying the required fifteen percent of the penalties

as a precondition to filing this lawsuit. (Doc. #159, ¶ 3.) No

further administrative mechanism has been identified, and the

United States does not challenge plaintiffs’ assertion that

administrative remedies have been exhausted. (Doc. #162.)

Indeed, prior to trial, the United States stipulated that

“[p]laintiffs satisfied the administrative prerequisites to filing

this refund suit.” (Doc. #137, ¶ 76.) The Court finds that the

RMC Group did exhaust its administrative remedies available with

the IRS.

C. Unreasonable Protraction of Court Proceeding

The United States argues at some length that even if the RMC

Group is a prevailing party, it will have no right to any award of

fees for the portions of the litigation it unreasonably protracted

by taking baseless positions and actions. (Doc. #162, pp. 22-25.)

More specifically, the United States argues that RMC Group’s

protective order motion was baseless, that the RMC Group repeated

the frivolous argument that the falsity of its statements was not

at issue, and that the RMC Group unreasonably drew out its

discovery responses. (Id.)

It is certainly true that reasonable litigation costs may not

be awarded “with respect to any portion of the . . . court

proceeding during which the prevailing party has unreasonably

protracted such proceeding.” 26 U.S.C. § 7430(b)(3). The Court

finds it unnecessary to resolve this issue, however, since it goes

to the amount of fees to be awarded, and not the issue of

entitlement to such litigation costs. See Local Rule 7.01, United

States District Court, Middle District of Florida (setting up a

bifurcated procedure to determine entitlement to and amount of

attorney fees and expenses.) As discussed below, the government’s

position was substantially justified, thereby precluding RMC

Group’s status as a prevailing party.

D. Prevailing Party Generally

To recover under 26 U.S.C. § 7430, a taxpayer must prove that

it is a “prevailing party”. The general rule is that a taxpayer

is the prevailing party if it meets either of two requirements: it

has substantially prevailed with respect to either (1) the amount

in controversy, or (2) the most significant issue or set of issues

presented. 26 U.S.C. § 7430(c)(4)(A)(i). Where the final

determination is made by the court, the determination of whether

a party is a “prevailing party” is made by the Court. 26 U.S.C.

§ 7430(c)(4)(C)(ii).

It is undisputed that the civil actions in these cases are

court proceedings which were brought against the United States in

connection with the determination, collection, or refund of a tax

penalty under Title 26. It is also undisputed that the RMC Group

substantially prevailed in the court proceeding with respect to

both the amount in controversy and the most significant issue or

set of issues presented in the case. Therefore, plaintiffs

qualify as prevailing parties under 26 U.S.C. § 7430(a), unless

another statutory provision requires otherwise.

E. Substantially Justified Position of United States

Section 7430(c)(4)(B) provides an exception to the general

prevailing party definition. “A party shall not be treated as the

prevailing party ... if the United States establishes that the

position of the United States in the proceeding was substantially

justified.” 26 U.S.C. § 7430(c)(4)(B).

The term “position of the United States” means in relevant

part “the position taken by the United States in a judicial

proceeding to which subsection (a) applies....” 26 U.S.C. §

7430(c)(7)(A). “A position that is ‘substantially justified’ is

one that is justified to a reasonable degree that could satisfy a

reasonable person or that has a reasonable basis in both law and

fact.” Wilkes v. United States, 289 F.3d 684, 688 (11th Cir.

2002) (citing In re Rasbury, 24 F.3d 159 (11th Cir. 1994)). The

“position can be justified even though it is not correct” and “it

can be substantially (i.e., for the most part) justified if a

reasonable person could think it correct, that is, if it has a

reasonable basis in law and fact.” Pierce v. Underwood, 487 U.S.

552, 566 n.2 (1988). Additionally, the outcome of the underlying

litigation is not dispositive as to whether the government’s

position was substantially justified. Id. at 569. “Substantially

justified means that reasonable people could differ as to the

appropriateness of the contested action.” Maddow v. Procter &

Gamble Co., Inc., 107 F.3d 846, 853 (11th Cir. 1997) (citing Pierce

at 565). Although the result of the proceeding may be considered

as evidence, “the court considering an attorney’s fees application

must independently analyze the Government’s position.” Porter v.

Heckler, 780 F.2d 920, 922 (11th Cir. 1986). Whether the

government's litigation position was substantially justified is

reviewed for abuse of discretion. Wilkes, 289 F.3d at 688 (citing

In re Rasbury, 24 F.3d at 165-68).

(1) Overview

There may be tax benefits from transactions involving small

insurance companies, especially if the small insurer is a captive

insurer, sometimes referred to as a “micro-captive.” As the

Supreme Court has stated:

A micro-captive transaction is typically an

insurance agreement between a parent company

and a “captive” insurer under its control. The

[Internal Revenue] Code provides the parties

to such an agreement with tax advantages. The

insured party can deduct its premium payments

as business expenses. And the insurer can

exclude ... those premiums from its own

taxable income, under a tax break for small

insurance companies. [] The result is that the

money does not get taxed at all.

CIC Servs., LLC v. IRS, 593 U.S. 209, 213 (2021) (citations

omitted). Such tax benefits and incentives have led micro-captive

transactions to come under scrutiny because of “their potential

for tax avoidance or evasion.” CIC Servs., 593 U.S. at 213. Such

scrutiny was visited upon Ankner and the RMC Group.

The IRS began an administrative audit of Ankner and the

entities comprising the RMC Group to determine whether penalties

under 26 U.S.C. § 6700 were appropriate for their promotion of a

tax shelter involving their captive insurance program during

calendar years 2010 through 2016. By letter dated October 19,

2020, the IRS assessed penalties pursuant to § 6700 against CJA

for years 2010, 2011, 2012, 2014, 2015, and 2016; against RMC P&C

for 2010 through 2016; and against RMC Consultants for year 2011

through 2016.3 (Doc. #30 at ¶ 18; Doc. #151.) The entities paid

the required percentage of the amounts, protested the penalties,

3 The Court omits mention of penalties assessed against Ankner

individually since he is not a party to the current motion.

and sought a refund of such payments. (Id. at 20.) On March 25,

2021, the IRS disallowed their claims for refunds. (Id. at 21.)

On April 23, 2021, Ankner and the RMC Group entities filed

four lawsuits against the United States. These cases were

consolidated (Doc. #22) and proceeded on the operative Amended

Complaint (Doc. #30). The Amended Complaint asserted that the law

and facts did not support the imposition of any penalty under §

6700 and sought a refund of monies paid pursuant to the penalty

assessments.

The United States filed a Counterclaim (Doc. #34, pp. 8-15)

seeking full payment of the § 6700 penalties. The Counterclaim

clearly set forth the United States’ position in the case:

4. A captive insurance company is an insurance

company that insures the risks of companies

related to it by ownership.

5. In the present case, Counterclaim

Defendants use contracts issued by micro-

captive companies or entities that are not

operating as legitimate insurance companies as

a means to improperly reduce their clients’

aggregate taxable income.

6. Under the contracts, taxpayers make

payments to captive companies or entities

organized by the Counterclaim Defendants and

treat the payments as insurance premiums. The

taxpayers then deduct the payments from their

taxable income as ordinary and necessary

expenses under 26 U.S.C. § 162(a).

7. At the same time, the captive companies or

entities improperly elect under § 831(b) of

the Internal Revenue Code to be taxed only on

their investment income and exclude the so-

called premium income from their taxable

income.

8. Neither party to these captive transactions

pays tax on the micro-captive premiums based

on the false or fraudulent premise that the

captive companies or entities are entitled to

compute their taxes as operating insurance

companies.

9. To qualify to compute income as an

insurance company under § 831(b), more than

half of the captive company’s business must

involve issuing insurance or annuity contracts

or the reinsuring of risks underwritten by

insurance companies.

10. In the present case, however, the captive

transactions at issue do not constitute

insurance, and the purchasers of the purported

captive insurance are not entitled to deduct

the payments they made to the captive

companies or entities.

11. In addition, the purported micro-captive

insurance companies formed or organized by the

Counterclaim Defendants do not qualify to be

taxed as insurance companies.

12. The captive companies or entities do not

sufficiently distribute risk and they do not

provide insurance in its commonly accepted

sense.

13. In the present case, only .0057% of the

total premiums paid to the captive entities

were paid out in claims during the relevant

time period.

14. During that same time, only 38 claims were

filed resulting in the total amount paid out

of only $422,702.11. The total amount of

premiums paid to the captive companies or

entities was $74,003,517.02.

15. During the tax years 2010 through 2016,

the Counterclaim Defendants organized, or

assisted in the organization of, and sold

interests in purported micro-captive

insurance companies.

16. The Counterclaim Defendants also marketed

their micro-captive arrangement as a tax

advantaged deposit arrangement rather than an

insurance product.

17. The marketing efforts of the Counterclaim

Defendants and the captive companies or

entities demonstrate their focus on:

a. income and estate tax benefits;

b. investment returns and wealth accumulation;

and

c. asset protection from potential creditors.

18. As part of their marketing efforts, the

Counterclaim Defendants attend conferences

hosted by trade groups of pension and

retirement plan brokers to promote their

captive insurance arrangement as a product

that the brokers could sell to their clients.

19. Section 6700 imposes a penalty on persons

who organize (or assist in the organization

of), or participates (directly or indirectly)

in the sale of any interest in, an entity,

plan or arrangement and makes or furnishes or

causes another person to make or furnish a

statement with respect to the allowability of

tax deductions or credits, the excludability

or any income, or the securing of any other

tax benefit by reason of participating in a

plan or arrangement which the person knows or

has reason to know is false or fraudulent as

to any material matter.

20. The micro-captive arrangement operated by

the Counterclaim Defendants is a plan or

arrangement within the meaning of § 6700.

21. The Counterclaim Defendants made or

furnished, or caused others to make or

furnish, false or fraudulent statements that

claimed the transactions promoted by the

Counterclaim Defendants met the requirements

for being treated as insurance for federal tax

purposes thus providing significant federal

tax savings. Because the entities created as

part of the micro-captive arrangement did not

qualify as insurance companies, these

statements were false.

22. The statements the Counterclaim Defendants

made were also material because they would

have had a substantial impact on the decision-

making process of a reasonably prudent

investor.

24. The Counterclaim Defendants knew or had

reason to know that their statements about the

purported tax benefits of the captive

transactions they were promoting were false or

fraudulent.

(Doc. #34, Counterclaim at ¶¶ 4-24.)

Prior to trial, the United States summarized its “Statement

of the Action” as follows:

Raymond Ankner and three companies he owned,

CJA and Associates, Inc., RMC Property &

Casualty, Ltd., and RMC Consultants, Ltd.

organized, or assisted in organizing, so-

called captive insurance companies. In

general, a captive insurance company is an

insurance company that insures the risks of

companies related to it by ownership.

Businesses paid insurance premiums, up to $1.2

million per year, to the captive insurance

companies Plaintiffs managed, and those

businesses took tax deductions based on those

premium payments. The parties dispute whether

those tax deductions were legal. The United

States contends that Plaintiffs are liable for

penalties for alleged false statements they

made about taking the tax deductions.

Plaintiffs contend that they are not liable

for these penalties. Plaintiffs Raymond Ankner

and CJA and Associates, Inc. also contend

that, even if they are liable for penalties,

they are liable in smaller amounts.

(Doc. #136, p. 2.) The parties also agreed upon an extensive

pretrial Joint Stipulation of Facts and Law. (Doc. #137.) A jury

returned verdicts in favor of all Plaintiffs. (Doc. #151.)

(2) Substantial Justification for Government Position

The United States does not dispute that it has the burden of

proof to establish that its positions at the judicial proceeding

were substantially justified. The United States argues that “the

evidence at trial was far more than enough to substantially justify

the United States’ position under the governing law.” (Doc. #162,

p. 4.)

(a) Court’s Prior Rulings

The United States begins by referring to two of the Court’s

prior orders. (Doc. #162, pp. 5-7.) On February 29, 2024, the

Court issued an Opinion and Order (Doc. #113) denying plaintiffs’

summary judgment motion, noting that the “record contains ample

evidence from which a reasonable jury could find for the United

States.” (Doc. #113, p. 12.) The United States also refers to

the Court’s denial of plaintiffs’ oral motion at trial for judgment

as a matter of law. The Court stated that there was ample evidence

presented at trial from which a reasonable jury could find the

United States had established the required elements of § 6700.

(Doc. #147, pp. 290-291.)

While the Court may certainly consider the record evidence at

the times of these rulings, neither determination resolves the

issue now before the Court. Neither summary judgment nor judgment

as a matter of law involves the same legal standard which governs

whether a position was substantially justified. Rather, the Court

must make an independent determination of that issue. Porter v.

Heckler, 780 F.2d at 922.

(b) Jury Verdicts

Plaintiffs argue that “whether the position of the IRS was

‘reasonable’ was put to the ultimate test in this case in front of

the eight (8) reasonable people who formed the jury, and they found

it to be severely lacking.” (Doc. #159, at ¶ 26.) But the jury

was not called upon to decide whether the government’s position

was reasonable, as demonstrated by the jury instructions setting

forth the elements the government must prove. (Doc. #149, pp. 6-

7.) The verdicts were not a referendum on the reasonableness of

the government’s position. While the Court may consider the jury

verdicts, they are not determinative of the decision the Court is

now called upon to make.

(c) Evidence At Trial

Both sides rely upon the evidence presented at trial, although

they draw different conclusions from that evidence. The United

States argues that “the evidence at trial went well beyond showing

a substantial justification,” and that it “showed that RMC Group’s

promotion of its captive insurance program satisfied each of these

[§ 6700] elements.” (Doc. #162, pp. 6 & 7.) The United States

further argues that “the actual evidence amply demonstrates

substantial justification” (id. at 8) and goes on to outline that

evidence as to each of the § 6700 elements (id. at 8-22).

The undersigned has the benefit of having presided over the

case from its inception in district court, including presiding

over the jury trial. After considering the totality of the record,

the Court finds that the United States has proven that its

positions were substantially justified. This includes its key

position that the captive program did not qualify as “insurance”

for tax purposes because there was no risk distribution, so its

customers could not deduct their “premium” payments. (Doc. #162

at pp. 9, 12-13.) It has long been established that insurance

involves risk-shifting and risk-distributing, Helvering v. Le

Gierse, 312 U.S. 531, 539–40 (1941), and the United States’

position that at least risk-distribution was missing in this case

was substantially justified by the evidence throughout the

pendency of the case. The United States’ inability to convince

the jury of the merits of its case does not change the substantial

justification of its positions.

The Court has considered plaintiffs’ arguments to the

contrary but is not convinced. Plaintiffs begin with the argument

that “[t]he United States’ position was not substantially

justified since the IRS did not follow its own applicable published

guidance available during the years for which penalties were

assessed and would not satisfy a reasonable person.” (Doc. #159

at ¶ 4.) Plaintiffs argue that the IRS erroneously determined

that they were promoting abusive tax shelters during the

administrative proceeding by claiming that their product was “not

insurance” because it failed to meet the risk shifting and

distribution requirements required for “insurance.” Plaintiffs

maintain that the IRS’s position was not supported by the

applicable published guidance available to plaintiffs for the

years at issue – 2010 through 2016. The only applicable published

guidance available to plaintiffs, they assert, was Revenue Ruling

2002-89 and IRS Notice 2016-66. Additionally, plaintiffs assert

that much updated and changed information was available to the IRS

by the time of trial. (Doc. #159, at ¶¶ 28-37.)

The only proceeding in which the RMC Group prevailed was the

federal court proceeding. As discussed earlier, as a general rule

such a party is not treated as a “prevailing party” if the United

States establishes that its position in the proceeding was

substantially justified. 26 U.S.C. § 7430(c)(4)(B)(i). The

government’s position is substantially justified if there is a

reasonable basis for it both in law and in fact. However, “the

position of the United States shall be presumed not to be

substantially justified if the Internal Revenue Service did not

follow its applicable published guidance in the administrative

proceeding. Such presumption may be rebutted.” 26 U.S.C. §

7430(c)(4)(B)(ii). The term “applicable published guidance”

includes “regulations, revenue rulings, revenue procedures,

information releases, notices, and announcements” as well as

“private letter rulings, technical advice memoranda, and

determination letters.” 26 U.S.C. § 7430(c)(4)(B)(iv). This

inquiry is directed to the government’s position at two distinct

stages: the date the IRS issued the penalty assessment and the

period following the filing of the government’s answer in the

litigation. See 26 U.S.C. § 7430(c)(7); Grant v. Comm'r, 103 F.3d

948, 952 (11th Cir. 1996).

Plaintiffs have not shown that the Internal Revenue Service

failed to follow its applicable published guidance at either of

the relevant stages. Since at least 1941, we have known that

“[h]istorically and commonly insurance involves risk-shifting and

risk-distributing,” Helvering, 312 U.S. at 539, and that

Congress’s failure to define the term “insurance” does not preclude

the IRS or a court from resolving disputes regarding such

insurance. Id. at 540-42. Revenue Ruling 2002-89 does not

preclude the IRS from resolving issues involving such “insurance”

which does not satisfy the risk-distributing element. As another

district court has recently stated:

The IRS recently became suspicious of some

micro-captive insurance arrangements. In

2016, it published Notice 2016-66, which

designated certain micro-captive transactions

as “transactions of interest” under Treas.

Reg. § 1.6011-4(b)(6) and I.R.C. §§ 6111 and

6112, subjecting certain micro-captive

insurers (and their insureds) to special

reporting requirements. See Transaction of

Interest—Section 831(B) Micro-Captive

Transactions, 2016-47 I.R.B. 745 (2016).

Standard Insurances v. Internal Revenue Serv., 2:23-CV-47-HCN-DAO,

__ F. Supp. 3d __, 2024 WL 3912283, at *1 (D. Utah Aug. 23, 2024).

By May 17, 2021, the Supreme Court had highlighted the potential

tax problems of micro-captive transactions. CIC Services, LLC,

593 U.S. at 213 (“[T]he IRS determined that so-called micro-captive

transactions must be reported because of their potential for tax

evasion.”). By 2022, there was at least one federal appeals court

decision upholding the IRS’s legal position. See Reserve Mech.

Corp. v. Comm'r of Internal Revenue, 34 F.4th 881 (10th Cir. 2022).

See also 26 U.S.C. § 7430(c)(4)(B)(iii) (“[T]he court shall take

into account whether the United States has lost in courts of appeal

for other circuits on substantially similar issues.”). Contrary

to plaintiffs’ argument, neither the IRS nor the Court is limited

to information that existed between 2010 and 2016. 26 U.S.C. §

7430(c)(7); Grant, 103 F.3d at 952. There was no evidence

presented that the IRS took a position different than its own

guidelines or rulings.

Accordingly, it is now

ORDERED:

Plaintiffs’ Motion on Entitlement to Reasonable Litigation

Fees/Costs (Doc. #159) is DENIED.

DONE and ORDERED at Fort Myers, Florida, this 19th day

of November 2024.

= ft 2

ARLI

JGH E. STEELE

5 IOR UNITED STATES DISTRICT JUDGE

Copies:

Counsel of Record