# Ankner v. United States

> District Court, M.D. Florida · November 19, 2024

URL: https://www.frixlaw.com/law-library/cases/10744310

## Case

- **Court:** District Court, M.D. Florida
- **Decided:** November 19, 2024
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10744310. Public record. Not legal advice.