Excerpts from the complaint (cleaned up):
4. The Internal Revenue Service issued a summons to the DDOI for testimony and certain records relating to filings by and/or communications ith Artex Risk Solutions, Inc. (“Artex”) and Tribeca Strategic Advisors, LLC “Tribeca”) or others working with Artex and/or Tribecca. With this petition, the United States seeks an order enforcing Request 1 of the [*2] summons to the extent the DDOI has not already provided those records to the Internal Revenue Service, and also requiring the DDOI provide the summonsed testimony to the IRS.
5. The Internal Revenue Service is conducting an investigation for the purpose of determining the role of Artex in transactions involving micro-captive insurance plans organized under 26 U.S.C. § 831(b), as well as other potentially abusive transactions. Tribeca is fully owned by Artex as of 2010, and the IRS is also investigating its role in transactions involving micro-captive insurance plans and other potentially abusive transactions. Among other things, the Internal Revenue is looking at whether Artex or Tribeca have promoted micro-captive insurance schemes and whether their actions may result in penalties pursuant to 26 U.S.C. § 6700, which Congress designed as penalty provisions specifically directed towards promoters of abusive tax shelters and other abusive tax avoidance schemes. * * * see also Keltner Decl. ¶ 4 (investigation to determine whether Artex and Tribeca are subject to penalties under 26 U.S.C. § 6700, which permits imposition of penalty against any person who makes or furnishes or causes another person to make or furnish certain statements which the person knows or has reason to know are false or fraudulent as to any material matter).
6. Micro-captive insurance schemes were designated a “Transaction of Interest” by the IRS. Transactions of Interest are those the IRS believes have the potential for tax avoidance or evasion. The United States Tax Court has found these schemes can be used to avoid or evade taxes. In the last three years, the United States Tax Court has struck down three separate micro-captive insurance transactions where the taxpayer sought to shield income from taxation through sham insurance companies [*3] Avrahami v. Commissioner, 149 T.C. 144, 179-180 (Tax Ct. 2017) (describing micro-captive transactions); Reserve Mech. Corp. v. Commissioner, Tax Ct. Memo. 2018-86, 2018 WL 3046596, at *16 (Tax Ct. 2018) (finding transactions did not constitute insurance where they involved circular flow of funds, were not the product of arm’s-length considerations, used premiums that were not actuarially determined, covered nonexistent risks, and involved unlicensed insurance companies created for no legitimate non-tax purposes) (appeal docketed at No. 18-9011 (10th Cir.)); Syzygy v. Commissioner, T.C. Memo. 2019-34, 2019 WL 1559540, at *45 (Tax Ct. 2019) (invalidating Delaware micro-captive insurance company because arrangement did not distribute risk and did not meet commonly accepted definition of insurance). In at least one case, the United States Tax Court noted the participation of promoters in the micro-captive insurance scheme it invalidated. Avrahami v. Commissioner, 149 T.C. at 206 (taxpayers cannot rely on “promoters” of tax avoidance schemes to avoid penalties under 26 U.S.C. § 6662).
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8. The DDOI has issued approximately 191 insurance certificates of authority to micro-captive insurance companies associated with Artex. The informationsought by the IRS summons is likely to be relevant to a determination of whether the Artex or Tribeca transactions were abusive tax shelters and whether Artex or Tribeca made false and fraudulent statements in organizing those abusive tax shelters.Some of the claims indicate cozy relationships between the regulators and the regulated: See e.g.,:
10. For instance, in email correspondence that occurred on February 25, 2013, the DDOI agreed to issue Certificates of Authority to an Artex client with a certificate date of December 31, 2012. .
11. In another email, Artex invites the Director of the Bureau of Captive Insurance toPrevious blogs on IRS interest in these captive or micro-captive insurance arrangements are:
dinner “as a thank you.” The director declines the invitation, explaining that “[i]t’s not that we don’t want to, but we’ve already accepted the invitation of another captive manager for dinner” that evening. The Artex employee and the director then schedule a breakfast at the Green Room in the Hotel Dupont with six DDOI employees the following morning.
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