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 related captive insurance coverage preparations, all determined in favor of the IRS. The standard pink flags pertaining to round funds, premium calculations unbiased 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 entails 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 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-about the Delaware Tribal Nation, however per the opinion, the Delaware Tribal Nation had no report of receiving an utility 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 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 in the hunt for a tribal domicile as an alternative choice to an offshore domicile. Whereas a Tribal Nation domicile could also be choice in some cases, a Tribal Nation that doesn’t have an insurance coverage regulatory authority is a pink 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.
