Final month, the Inside 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 circumstances involving comparable captive insurance coverage preparations, all determined in favor of the IRS. The same old purple 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 of a brand new issue – the tribal domicile.
This case entails a captive insurer domiciled within the Sac and Fox Nation. Per the Tax Court docket’s opinion, the captive supervisor had initially thought of Nevis, a Caribbean offshore jurisdiction, however selected towards Nevis “as a result of captive insurance coverage entities created there had change into a spotlight of IRS consideration.” The captive supervisor then thought of the Delaware Tribal Nation, however per the opinion, the Delaware Tribal Nation had no file of receiving an software from the captive supervisor.[2] In the end, the Sac and Fox Nation was chosen which on the time “had no regulation governing insurance coverage corporations and no insurance coverage regulatory authority.”[3] The corporate was integrated “as an abnormal home company within the Sac and Fox Nation.” Moreover, “[t]right here is not 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 looking for a tribal domicile as a substitute for an offshore domicile. Whereas a Tribal Nation domicile could also be possibility in some situations, a Tribal Nation that doesn’t have an insurance coverage regulatory authority is a purple 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.
