Final month, the Inner Income Service (the “IRS”) notched one other win on the U.S. Tax Court docket (the “Tax Court docket”).[1] In its opinion, the Tax Court docket commented that it has determined seven instances involving related captive insurance coverage preparations, all determined in favor of the IRS. The standard crimson flags pertaining to round funds, premium calculations impartial of loss expertise, and sudden improve in claims following IRS inquiry are all current. On this occasion, the Tax Court docket thought-about a brand new issue – the tribal domicile.
This case includes a captive insurer domiciled within the Sac and Fox Nation. Per the Tax Court docket’s opinion, the captive supervisor had initially thought-about Nevis, a Caribbean offshore jurisdiction, however selected in opposition to Nevis “as a result of captive insurance coverage entities created there had turn into a spotlight of IRS consideration.” The captive supervisor then thought-about the Delaware Tribal Nation, however per the opinion, the Delaware Tribal Nation had no document of receiving an utility from the captive supervisor.[2] Finally, the Sac and Fox Nation was chosen which on the time “had no legislation governing insurance coverage firms and no insurance coverage regulatory authority.”[3] The corporate was integrated “as an strange home company within the Sac and Fox Nation.” Moreover, “[t]right here isn’t any credible proof that RMIC was organized, operated, or regulated as an ‘insurance coverage firm.’”[4]
Per the Tax Court docket’s opinion, it seems that the captive supervisor went searching for a tribal domicile as a substitute for an offshore domicile. Whereas a Tribal Nation domicile could also be a very good possibility in some cases, a Tribal Nation that doesn’t have an insurance coverage regulatory authority is a crimson flag which invitations scrutiny. The lesson particular to this case is that domiciles matter.
[1] Royalty Administration Ins. Co., Ltd. v. Comm’r, T.C. Memo. 2024-87 (September 16, 2024).
[2] Id. at 14.
[3] Id. at 36.
[4] Id.
